MASTER 
NEGATIVE 

NO.  94-82266 


COPYRIGHT  STATEMENT 


The  copyright  law  of  the  United  States  (Title  17,  United  States  Code) 
governs  the  making  of  photocopies  or  other  reproductions  of  copyrighted 
materials  including  foreign  works  under  certain  conditions.  In  addition, 
the  United  States  extends  protection  to  foreign  works  by  means  of 
various  international  conventions,  bilateral  agreements,  and 
proclamations. 

Under  certain  conditions  specified  in  the  law,  libraries  and  archives  are 
authorized  to  furnish  a  photocopy  or  other  reproduction.  One  of  these 
specified  conditions  is  that  the  photocopy  or  reproduction  is  not  to  be 
"used  for  any  purpose  other  than  private  study,  scholarship,  or  research." 
If  a  user  makes  a  request  for,  or  later  uses,  a  photocopy  or  reproduction 
for  purposes  in  excess  of  "fair  use,"  that  user  may  be  liable  for  copyright 
infringement. 

The  Columbia  University  Libraries  reserve  the  right  to  refuse  to  accept  a 
copying  order  if,  in  its  judgement,  fulfillment  of  the  order  would  involve 
violation  of  the  copyright  law. 


Author: 

MacFarland,  George 

Arthur 

Title: 

A  first  year  in 
bookkeeping  and... 

Place: 

New  York 

Date: 

[1913] 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATION  DIVISION 

BIBLIOGRAPHIC  MICROFORM  TARGET 


ORIGINAL  MATERIAL  AS  FILMED  -    EXISTING  BIBLIOGRAPHIC  RECORD 


'Ul64 


»*  . 


a— 


MacFarland,  George  Arthur,  1887- 

A  first  year  in  bookkeeping  and  accounting,  by  George 
A.  MacFarland  and  Irving  D.  Rossheim  ...  New  York, 
Chicago,  D.  Appleton  and  company  [1913] 

viii,  227  p.  incl.  forms.    23^.      ($1.50  n 


4.  Bookkeeping.   2^  Accounting, 
joint  author.  *^^ 


Library  of  Congress 
Copyright    A  347367 


I.  Rossheim,  Irving  David,  1887- 


HF5635.M12 


13-11496 


7 


SH-%»^(i.(i,-3 


MASTER   NEGATIVE  * 


RESTRICTIONS  ON  USE: 


TECHNICAL  MICROFORM  DATA 


RLM  SIZE:    3f)*Y\Vn 


REDUCTION  RATIO:       \'^ 


IMAGE  PLACEMENT:  lA 


® 


IB      IIB 


DATE  FILMED:        W-H  -^ 


INITIALS 


:_St 


TRACKING  #  : 


A^</j  0V^\ 


HLMED  BY  PRESERVATION  RESOURCES.  BETHLEHEM.  PA. 


74t 


CaI 

■^ 

Ul 

tn 

3 

3 

3 

3 

> 

Q) 

CD 

ABC 
bcdef 

Q)0 

o  m 

?io 

Q."n 

2.m 

3x 

•— '  3"  ^ 

K^^ 

si 

^3^ 

0^:3  Z 

i  o 

'^JS  O 

RST 
stuv 

^^ 

$c= 

OiX 

X  < 

CX>M 

«0 

o 

X 

M 

V 


'^F 


.^i 


^-^ 
^J^^ 

''^^y^ 


<v^ 


'«, 


* 


3 
i 


> 


Ul 

o 

3 
3 


^^^ 


Ul 


^^. 


^ 


a? 


s 

3 

3 


O 


f."«C|EC|?|; 


o. 


b^  Ig 


1^1 


1.0  mm 


1.5  mm 


2.0  mm 


ABCDCFGHIJKLMNOPOWSTUVWXYZ 
at>cde(ghi|hlmnopq(&tuvw>y;  1 234567890 


ABCDEFGHIJKLMNOPQRSTUVWXYZ 
abcdefghijklmnopqrstuvwxyz  1 234567890 


ABCDEFGHIJKLMNOPQRSTUVWXYZ 

abcdefghijklmnopqrstuvwxyz 

123456789<) 


ABCDEFGHIJKLMNOPQRSTUVWXYZ 
abcdefghijklmnopqrstuvwxyz 
2.5  mm  1234567890 


A^^ 

***^' 


« 


^o 


:<p 


fp 


f^ 


•«^. 


•/^. 


'^^ 


m 

H 
O 

o 

■o  m  -o 

>  C  CO 

I  TJ  ^ 
"CO    5 

m 

O 

m 


C^ 


"/M^ 


C 


4^ 


'^^ 


.^-.^.^-^ 


^CP 


^^ 


1— » 

f>0 

CJl 

o 

3 

3 

01 

cr 

Ck> 

8.> 

o- 

^S'O 

'^.o 
^m 

2;m 

2:0 

3x 

3l 

s^ 

IJKLMN 
nopqrst 

OPQRST 
jvwxyzl 

OPQR 
uvwxy 

^c 

M  (/) 

^— 1 

<T>X 

Ca)^ 

OOM 

o^x 

^-< 

00  Nl 

VO 

0 

rp. 


n  ##-**4n*-trt"-r-*     .•». 


^ 


\if.. 


t*  " 

if  *■ 

•  «  ^ 


A    FIR^S^F 


••ft  •  *!,*  •»«. 


>/««•«*•■«'  n«t  f  i**> 


-4  •••I 


4    »Jf^    <!«.«>•« 


4M  >1  fl  *  ' 


ANt> 


D .  APPi^l^C^  J^1>  C^OIffi^^^ 


iff^ 


"1 


:da-\q 


VU\G^- 


intlieCftpof^taigorfc 


LIBRARY 


School  of  Business 


I  I 


M 


J 


/■ 


•I 


I 


A  FIRST  TEAR 
IN  BOOKKEEPING  AND   ACCOUNTING 


• ) 


:3BE3KSbi 


A  FIRST  YEAR 

m  BOOKKEEPING  AND 

ACCOUNTING 


BT 
GEORGE  A.  MACFARLAND,   B.S.  in  EcoN. 

AND 

IRVING  D.  ROSSHEIM,  B.S.  in  Econ.,  LL.B. 

WHARTON   SCHOOL   OF   FINANCE   AND   COMMERCE 
UNIVERSITY  OF   PENNSYLVANIA 


[ 


D.    APPLETON    AND    COMPANY 

NEW  YORK  CHICAGO 


Copyright,  1913, 
By  D.  APPLETON  AND  COMPANY 


)l-   IWIO 


60 


^ 
£ 


FOREWORD 

A  TEXT-BOOK  on  bookkeeping  and  accounting  is  by  no  means  an 
original  undertaking,  and  the  many  treatises  already  written  on  the 
subject  make  it  difficult  for  the  authors  to  give  their  effort  any  dis- 
tinguishing features.  Their  endeavor,  however,  has  been  to  lay  par- 
ticular emphasis  on  the  methods  of  exposition;  appeal  being  made  to 
the  understanding  rather  than  to  the  memory  of  the  student.  As  to 
the  merits  of  any  departure  from  accepted  theories  of  teaching,  the 
book  must  speak  for  itself,  and  it  is  hoped  that  it  will  be  of  sufficient 
benefit  to  instructor  and  student  alike  to  warrant  its  holding  some 
place  in  the  literature  on  the  subject. 

The  plan  of  work  adopted  has  been  to  follow  as  far  as  possible 
the  historical  evolution  of  the  subject,  explaining  the  difficulties 
as  they  arise,  and  assuming  no  previous  knowledge  on  the  part  of 
the  reader.  Each  chapter  contains  an  exposition  of  the  subject,  fol- 
lowed by  illustrative  problems  and  solutions  to  enable  the  student 
better  to  understand  the  principles  explained  and  to  apply  them  in 
the  problems. 

The  text,  as  the  title  indicates,  is  designed  to  provide  a  full  first 
year's  work  in  bookkeeping  and  accounting,  for  use  in  higher  insti- 
tutions of  commercial  training. 

Three  Principal  Problems  are  found  at  the  end  of  the  book.  Prin- 
cipal Problem  I  embodies  all  the  subjects  discussed  in  Chapters  IV  to 
XXIII ;  and  Principal  Problems  II  and  III,  either  of  which  may 
be  used,  cover  the  subject  of  Columnar  Books,  treated  in  Chap- 
ter XXIV.  In  addition  to  these  main  problems,  the  instructor  may 
assign  as  many  of  the  supplementary  problems,  to  be  found  at  the 
end  of  the  chapters,  as  he  deems  necessary  to  impress  thoroughly  the 
particular  subject  being  considered. 

The  authors  desire  to  take  this  opportunity  to  express  their  sin- 
cere appreciation  of  the  valuable  suggestions  and  hearty  cooperation 
of  Mr.  Albert  Hill,  General  Auditor  of  the  Atlantic  Refining  Co., 


VI 


FOREWORD 


Philadelphia,  Pa.,  Dr.  Edward  P.  Moxey,  C.P.A.,  Head  of  the 
Department  of  Accounting  in  the  Wharton  School  of  Finance  and 
Commerce,  University  of  Pennsylvania,  and  finally,  Mr. Charles  Hart, 
Head  of  the  Department  of  Business  Practice  in  the  Washington 
(D.C.)  High  Schools,  whose  valuable  criticism  of  the  manuscript 
permitted  its  publication  in  the  present  form. 


January  1,  1913. 


^ 


4/ 


TABLE   OF  CONTENTS 

CiiAPTBR  Page 

L    Introduction 1 

II.    Single  Entry  Bookkeeping 5 

III.  Profit  and  Loss  in  Single  Entry  Bookkeeping     ...  14 

IV.  Double  Entry  Bookkeeping 22 

V.    The  Trial  Balance       .........  34 

VL    The  Theory  of  Debit  and  Credit 37 

Vn.    The  Change  from  Single  Entry  to  Double  Entry  Book- 
keeping      41 

VIII.    Promissory  Notes 48 

IX.    Interest  and  Discount 53 

X.    The  Six-Column  Statement         • 61 

XI.    Closing  a  Set  of  Books 67 

XII.    The  Cash  Book 78 

XIII.    The  Sales  Book 83 

XIV.    The  Purchase  Book 87 

XV.    The  Bill  Book 90 

XVI.    Drafts .95 

XVII.    Bills  of  Lading 104 

XVIII.    Partnerships 113 

XIX.    A  Bank  Account 118 

XX.    Shipments  and  Consignments 126 

XXI.    Depreciation,  Reserves,  and  Accruals 136 

XXII.    The  Balance  Sheet  and  Profit  and  Loss  Statement          .  149 

XXIII.  Capital  and  Revenue 158 

XXIV.  Columnar  Books 161 

XXV.    Revenue  Accounts 176 

Principal  Problem  I     .        . 187 

Principal  Problem  II   . 212 

Principal  Problem  III 218 

Index 225 


vU 


LIST   OF  PROBLEMS 


h 
n 


Single  Entry 

Journal  and  Ledger 

Profit  and  Loss 


Double  Entry 
Principal  Problem 
Journal  and  Ledger 


Trial  Balances 


Change  from  Single  to 
Double  Entry 


Pbobucm 

Paob 

1 

10 

2 

11 

3 

12 

4 

18 

5 

18 

6 

19 

7 

20 

8 

20 

9 

20 

10 

21 

11 

21 

I 

187 

12 

30 

13 

30 

14 

31 

15 

32 

16 

36 

17 

36 

18 

36 

19 

36 

20 

45 

21 

45 

Aft 

Interest  and  Discount 


23 
24 
25 

26 


46 
46 
46 

59 


Pkoblkm  Paob 

Six-Column  Statements        27  65 

28  66 

29  66 


Closing  a  Set  of  Books 


Drafts 


Bank  Reconcilement 


30 

74 

31 

76 

82 

76 

33 

76 

36 

146 

37 

147 

38 

148 

84      103 


85      125 


Revenue  Accounts 

39 
40 
41 
42 

181 
183 
183 
185 

Columnar  Books 

Principal  Problem 
Principal  Problem 

II 
III 

212 
218 

fi 


Till 


A  FIRST  YEAR  m  BOOKKEEPIIS^G 

AND  ACCOUI^Tma 


CHAPTER  I 

INTRODUCTION 

Definition.  —  Bookkeeping  is  the  art,  method,  or  practice  of  re- 
cording business  transactions  in  a  systematic  manner. 

Objects.  —  Its  objects  are :  (1)  To  enab\|  the  proprietor  to  as- 
certain the  money  value  in,  or  due,  the  business,  represented  by  the 
assets ;  and  the  money  value  owed  by  the  business,  represented  by 
the  liabilities.  (2)  To  enable  the  proprietor  to  ascertain  whether 
the  business  is  being  run  at  a  profit  or  loss,  and  the  sources  of  such 
profit  or  loss. 

Distinction  between  Bookkeeping  and  Accounting.  —  Bookkeeping 
is  the  art  of  recording  business  transactions.  An  art  is  defined  as 
a  branch  of  human  knowledge  which  leads  to  the  doing  or  making 
of  something.  The  "something"  in  this  instance  is  a  running 
history  of  the  business  in  terms  of  figures. 

Accounting,  on  the  other  hand,  may  be  called  the  science  of  busi- 
ness transactions  as  distinguished  from  the  art ;  and  as  by  a  science 
we  mean  "  classified  facts,"  so  accounting  comprises  the  assembling 
or  classifying  of  the  facts  which  bookkeeping  has  arranged.  By 
analyzing  them  {i.e.  breaking  them  up)  and  constructing  them  in 
different  shapes  and  pictures,  accounting  produces  the  results  as 
losses  and  gains,  leakages,  economies,  etc.,  which  tell  the  story  of 
the  business,  its  progress  or  retrogression,  and  its  limitations  and 
possibilities. 

A  bookkeeper  gives  a  history  of  the  business  which  the  account- 
ant interprets  or  analyzes. 

Necessity  for  Bookkeeping  and  Accounting.  —  While  it  is  true  that 
but  a  small  number  of  the  students  having  reference  to  this  volume 
will  eventually  reach  the  summits  of  accounting,  having  no  desire 


T 


I 


2       A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

to  follow  it  as  a  profession,  yet  it  will  be  found  that  a  certain  amount 
of  accounting  knowledge  is  an  essential  to  the  satisfactory  conduct 
of  everyday  business,  whether  that  business  assume  the  dignity  of 
commercial  activity  or  be  merely  the  reckonings  of  a  housewife.  It 
is  not  an  isolated  science,  irrelevant  to  the  practical  workaday  life, 
but  is  to  be  found  in  every  avenue  of  trade;  and  developed,  it 
becomes  a  highly  interesting  study.  Without  bookkeeping  we 
must  rely  on  memory ;  and  the  difference  between  records  and  in- 
terpretation of  accounts  on  the  one  hand,  and  guess  work  or  rule- 
of-thumb  on  the  other  hand,  is  the  difference  between  success  and 
failure. 

The  Change  of  Attitude  towards  the  Bookkeeper.  —  Many  of  us  re- 
member the  old-time  disparagement  of  the  services  of  the  book- 
keeper and  accountant.  The  practical  man  of  the  last  generation 
wanted  the  assistant  who  could  buy,  sell,  or  make  something.  To 
him  the  office  force  was  a  luxury,  and  too  often  the  first  department 
to  be  discarded  or  curtailed  in  an  endeavor  to  reduce  expenses.  The 
energies  of  the  business  man  were  devoted  to  the  manufacture  or 
purchase  of  goods  at  the  lowest  figure,  and  their  sale  at  a  price  yield- 
ing the  greatest  margin  of  profit,  with  no  eye  to  such  expenses  as 
rent,  taxes,  light,  heat,  power,  and  depreciation  of  his  assets,  which 
so  largely  effected  a  reduction  of  his  profits.  It  was  only  when 
business  became  so  highly  competitive  as  to  force  down  his  selling 
price,  reducing  his  profits,  that  he  was  driven  to  a  consideration  of 
those  elements  entering  into  his  profits  and  losses.  To  facilitate  his 
investigation  it  was  necessary  that  an  intelligent  exposition  of  his 
business  facts  be  placed  before  him;  and  there  gradually  evolved 
this  daily  record,  the  making  of  which  devolved  on  the  bookkeeper. 

Necessity  of  Records.  —  In  this  competitive  age  when  success  is 
dependent  upon  successful  contracts,  and  successful  contracts  on 
low  and  yet  profitable  bids  or  estimates,  we  see  the  necessity  for 
records  which  enable  us  to  make  low  and  yet  safe  estimates.  In 
order  to  gauge  the  future  properly,  reference  must  perforce  be  made 
to  the  records  of  the  past. 

Facts  they  Show.  —  So,  then,  it  is  to  the  accounting  force  that 
the  manager  must  look  for  his  knowledge  of  those  statements  which 
show  the  past,  present,  and  comparative  volumes  and  values  of  his 
purchases ;  the  volume  of  his  production  and  its  cost,  the  gross 
amount  of  his  sales,  the  cost  of  marketing  his  goods,  the  gross  and 
net  returns,  and  the  comparative  profits  of  his  business. 


INTRODUCTION 


Development.  —  The  development  of  bookkeeping  really  follows 
the  development  of  trade  and  commercial  exchange. 

Barter  by  primitive  man  was  the  preliminary  to  a  future  demand 
for  a  medium  of  exchange,  and  the  latter  was  but  the  forerunner  of 
a  greater  expansion,  viz.  the  extension  of  credit ;  and  with  the  use 
of  credit  we  meet  our  first  absolute  need  for  bookkeeping  records. 

Credit,  which  is  the  confidence  of  one  man  in  the  ability  and 
intent  of  another  to  pay,  is  the  institution  which  is  responsible  for 
the  tremendous  growth  and  development  of  business  enterprises. 
Credit,  however,  is  deferred  payment,  being  nothing  more  than  a 
promise  to  pay,  either  written  or  inferred  ;  and  unless  noted  by 
some  appropriate  record,  resort  must  be  had  to  the  memory,  which 
is  always  untrustworthy. 

The  early  traders  gradually  found  themselves  involved  in  such  a 
maze  of  transactions  entailing  promises  of  delivery  and  payment, 
that  it  became  a  physical  impossibility  to  recall  what  they  owed  and 
what  was  due  them  without  some  aid  to  the  memory.  Though  these 
"  reminders  "  were  at  first  of  the  crudest  nature,  they  gradually  grew 
up  from  the  "small  beginning"  to  the  systematic  records  now  repre- 
sented in  the  different  modern  accounting  systems. 

Early  Records.  —  One  of  the  first  records  found  among  the  Latin- 
speaking  people  was  the  notched  stick.  A  stick  was  grooved  to 
represent  the  number  of  cattle,  sacks  of  grain,  or  other  items  of 
va,lue  that  were  owed.  The  stick  was  then  split  lengthwise  and  one 
half  was  given  to  the  man  who  owed  ("the  debtor")  and  the  other 
half  was  retained  by  the  "creditor."  At  the  time  of  the  settlement 
of  the  debt  the  two  halves  were  compared  to  prevent  fraud. 

As  the  art  of  writing  became  less  the  monoply  of  the  church  and 
the  scrivener,  and  more  a  matter  of  general  knowledge,  the  whittling 
of  the  notched  stick  gradually  gave  away  to  the  innovation  of  slips 
of  paper  or  tickets  on  which  were  written  the  names  of  the  debtor 
or  creditor  and  the  amount  due.  These  records  came  to  be  known 
as  debit  or  credit  tickets,  according  to  whether  the  name  was  that  of 
the  obligor  or  the  obligee. 

Debit  and  Credit. — This  introduces  to  us  the  words  "debit"  and 
"credit,"  which  are  so  important  in  bookkeeping  phraseology. 
Debit  comes  from  the  Latin  word  debere,  meaning  "  to  owe  " ;  credit 
comes  from  the  Latin  word  credere^  meaning  "to  trust."  Hence, 
debit,  "he  owes";  credit,  "he  trusts";  and  from  the  same  derivation 
we  have  the  very  common  words  "debtor"  and  "creditor." 


4 


A   FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Variations  of  these  methods  of  memoranda  record  are  referred  to 
in  contemporaneous  writings,  where  the  village  tapster  chalked  the 
charges  against  his  customer  on  the  door  of  his  inn,  and  when  the 
account  was  settled,  the  record  was  rubbed  off  the  door. 

Day  Book.  —  The  first  fairly  definite  commercial  records  in  books 
were  made  in  1211  in  a  Florentine  Bank.  They  were  merely  dic- 
tated memoranda  for  each  client,  with  no  attempt  at  connection, 
no  chance  of  detecting  errors  or  omissions;  merely  statements  of 
amounts  owed  by  or  owed  to  the  bank,  in  narrative  form. 

Ledgers.  —  During  the  fourteenth  century  we  find  that  in  France, 
Germany,  Italy,  and  other  countries  a  number  of  Ledgers  were  used, 
which  were  merely  aids  to  the  memory  and  in  which  were  kept 
records  onl}^  of  personal  accounts. 

Like  all  certain  sciences,  accounting  has  been  a  natural  growth, 
satisfying  each  contingency  as  it  arose,  developing  and  expanding 
to  meet  the  demands  made  upon  it;  and  therefore  in  a  treatise  on 
the  subject  it  is  logical  to  discuss  only  in  a  narrative  way  the  primi- 
tive forms,  so  crude,  so  inadequate.  But  when  we  reach  the  point 
where  it  is  possible  for  the  first  time  to  declare  that  there  exists  a 
"  system "  of  accounting,  which  by  the  observance  of  certain  well- 
defined  rules  will  result  in  uniform  records,  then  and  then  only  must 
we  be  more  specific.  With  these  few  words  of  introduction  we  enter 
upon  the  study  of  Single  Entry  Bookkeeping. 


t 


CHAPTER  II 

SINGLE  ENTRY  BOOKKEEPING 

Definition.  —  Single  Entry  Bookkeeping  is  in  its  essence  the  re- 
cording of  personal  debts  only.  Whether  the  record  be  of  the 
primitive  order  we  have  just  mentioned,  or  the  single  entry  records 
of  a  present-day  firm  of  size,  the  result  of  a  pure  system  of  this  kind 
would  give  us  only  records  of  personal  obligations.  When  an  estab- 
lishment using  the  so-called  single  entry  produces  more  results  than 
mere  records  of  amounts  owed  to  and  by  the  business,  just  so  far  is 
it  encroaching  on  double  entry  bookkeeping.  It  is  this  mixture  of 
single  and  double  entry  by  firms  supposedly  keeping  their  records 
by  single  entry  that  makes  an  exposition  of  this  subject  so  difficult. 
To  discuss  fully  the  single  entry  as  found  in  professional  offices  and 
mercantile  establishments,  we  would  be  compelled  to  consider  each 
set  separately,  since  being  mongrel  types  they  contain  not  only  the 
fundamentals  of  pure  single  entry,  but  such  common  features  of 
double  entry  as  the  proprietor  of  the  establishment  may  happen  to 
know.  Our  discussion  must  therefore  be  limited  to  pure  theoretical 
single  entry. 

The  only  books  necessary  are  a  Journal  and  a  Ledger. 

A  Journal  is  a  book  of  original  entry  or  first  record,  containing 
•  the  names  of  the  persons  to  be  debited  or  credited,  with  such  ex- 
planations as  each  transaction  may  warrant,  and  so  arranged  that 
the  debit  or  credit  may  be  quickly  ascertained  for  the  purpose  of 
transfer  to  a  book  of  final  record. 

A  Ledger  is  a  book  of  final  record,  containing  a  series  of  head- 
ings, each  of  which  is  the  name  of  a  person,  under  which  are  sum- 
marized the  debits  and  credits  to  that  person  as  found  in  the 
Journal. 

Single  Entry  an  Aid  to  Memory.  —  We  must  constantly  bear  in 
mind  that  single  entry  is  purely  an  aid  to  the  memory,  and  hence  in 
our  Journal  we  will  record  only  those  personal  transactions  involving 
payments  in  the  future,'  and  of  which  we  have  no  other  record.  We 
may  suggest  the  following  two  rules : 

6 


I 


6       A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

RULES 

1.  (a)  Debit  a  person  when  he  becomes  indebted  to  the  business. 
(h)  Credit  a  person  when  he  liquidates  the  debt. 

2.  (a)  Credit  a  person  when  he  trusts  the  business. 

(5)  Debit  a  person  when  the  business  liquidates  the  debt. 

Exceptions.  —  To  state  the  application  of  the  above  rules  from  a 
negative  standpoint,  we  may  say  that  they  do  not  apply  to  those 
transactions  which  are  pure  barter  and  are  settled  immediately ;  for 
instance,  the  sale  or  purchase  of  merchandise  for  cash,  or  to  any 
other  transaction  from  which  there  is  evidence  of  debt,  as  the  pur- 
chase or  sale  of  merchandise  for  a  note  (a  written  promise  to  pay).  . 

To  illustrate  the  above  rules  of  journalizing,  take  the  following 
transactions  with  their  proper  record  in  the  Journal : 

Oct.  1,  1913.  —  1.   Alton  B.  Kirk  commences  the  general  merchandise  business 

this  day,  investing  as  follows  : 
Store  and  Lot 
Horse  and  Wagon 
Cash  ^ 

Note  of  S.  Dietrich  &  Co. 
Claims  against  Henry  R.  Edlund 
and  James  Garvin,  each  for 
The   business   assumes   an   obligation   to   D.  F.  Payne  for 
$  600.00. 
Oct.  3,  1913. —   2.    Purchase   from   D.  W.  Holton,  for  cash,  merchandise   to 

'    value  of  $  2000.00. 

3.  Sell  to  Henry  R.  Edlund,  $1100.00  worth  of  merchandise, 

on  account. 

4.  Purchase   from   D.  W.  Holton,  $1500.00  worth  of  mer- 
chandise, for  which  Mr.  Holton  receives  a  30-<lay  note. 

5.  Pay  the  Carmine  Paint  Co.  for  painting  the  store,  $  100.00. 

6.  Sell  to  D.  F.  Payne,  $400.00  worth  of  mdse.,  on  account. 

7.  Sell  to  Harrison  F.  Reeder,  $600.00  worth  of  merchandise, 

for  cash. 

8.  Sell  to  Philip  DeKuil  &  Co.,  $1000.00  worth  of  merchan- 

dise, receiving  in  settlement  a  30-day  note. 
Oct.  6,  1913.—   9.   Alton  B.  Kirk  withdraws  $100100  from  the  business,  of 

which  $  25.00  is  salary. 
10.    Pay  the  clerk  his  weekly  salary,  $14.00. 
Oct.  8,  1913.  — 11.   Pay  D.  F.  Payne,  $  100.00  on  account. 

12.   Receive  check  for  $1000.00   from   Henry  R.  Edlund,  to 
apply  to  his  account. 


$  4600.00 

250.00 

4000.00 

750.00 

500.00 


Oct.  4,  1913. 


> 


SINGLE  ENTRY  BOOKKEEPING 

SOLUTION 
Single  Entry  Journal 

October  1,  1913 


Ex.  1 


) 


L.F. 
1 


£x.  3 


Ex.6 


Ex.9 


Ex.11 
Ex.12 


1 
1 
1 


1 
1 


Alton  B.  Kirk 

commenced  business,  investing  as 
follows : 

Store  and  Lot  $4600.00 
Horse  and  Wagon  250.00 
Cash  4000.00 

Notes  Receivable  750.00 
H.  R.  Edlund  500.00 

James  Garvin  500.00 


$10600.00 


600.00 
$10000.00 


Less  Claim  of 
D.  F.  Paynte 

• 

H.  R.  Edlund    . 

owes  as  above 
James  Garvin 

owes  as  above 
D.  F.  Payne 

due  him  as  above 


Henry  R.  Edlund 

sell  him' mdse.  on  account 

4 

D.  F.  Payne 

sell  him  mdse  on  account 

6 

Alton  B.  Kirk 

withdraws  $100.00,   of  which 
$25.00  is  salary 

8 

D.  F.  Payne 

send  him  check  to  apply  on  acc*t 
H.  R.  Edlund      . 

receive  his  check  to  apply  to 
his  accounts 


Cr. 


Dr. 
Dr. 
Cr. 

Dr. 
Dr. 
Dr. 


Dr. 
Cr. 


10000 


500 
500 
600 

1100 

400 

75 


00 


100 

1000 


00 
00 
00 

00 
00 
00 


00 
00 


I 


Ezplaiiation.  —  The  Journal,  as  mentioned  before,  is  a  book  of 
original  entry,  in  which  we  make  the  first  record  of  a  debit  or  credit 
to  any  account.     From  the  illustration  it  will  be  seen  that  the  rul- 


W 


■•I. 


8       A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

ings  as  given  are  not  absolutely  fundamental.  For  the  sake  of  uni- 
formity in  our  work  we  have  adopted  this  (a  double  entry  Journal) 
for  our  work  in  single  entry,  although  a  page  with  only  one  column 
would  have  been  sufficient.  To  explain  the  Journal  as  given,  we 
find  that  the  first  column  on  the  extreme  left  is  not  used.  The 
second  column,  known  as  the  "  folio  "  column,  is  to  record  the  num- 
ber of  the  page  of  the  Ledger  to  which  the  particular  debit  or  credit 
is  posted.  The  middle  or  large  space  is  to  record  the  name  of  the 
person  debited  or  credited,  with  such  explanation  as  may  be  deemed 
necessary.  Of  the  last  two  columns  the  inner  one  is  unimportant 
and  may  be  disregarded  entirely,  or  used  to  tabulate  the  various  items 
making  up  the  debit  or  credit ;  while  the  last  column  is  for  the  pur- 
pose of  recording  the  particular  amount  to  be  debited  or  credited 
opposite  the  person's  name.  One  of  the  most  important  points  to  be 
noted  in  a  single  entry  Journal  is  to  place  conspicuously  the  sign 
"Dr."  or  "Or."  ("debit"  or  "credit"),  as  this  is  the  only  means 
of  knowing  later  how  to  classify  the  particular  item.  Preferably  it 
should  be  done  as  in  the  illustration. 

Ex.  1.  —  Alton  B.  Kirk  is  credited  because  he  has  trusted  the 
business  with  the  net  amount  of  value  invested. 

The  listing  of  the  items  is  purely  explanatory  and  in  no  instance 
is  extended  to  the  money  column. 

H.  R.  Edlund  and  James  Garvin  are  separately  debited  because 
Mr.  Kirk  has  transferred  his  claims  against  these  men  to  the  business, 
which  they  now  owe  ;  hence,  the  debit.  Similarly,  Mr.  Kirk  has 
transferred  his  indebtedness  to  D.  ¥,  Payne  to  the  business,  which  is 
now  trusted  by  D.  F.  Payne  ;  hence,  the  credit. 

Ex.  2.  —  Note  that  no  entry  is  made  for  this  purchase  from 
D.  W.  Holton  for  cash,  as  nothing  need  be  remembered  from  this 
transaction.  You  will  recall  that  only  debts  due  to  or  by  the 
business  are  recorded,  so  in  a  transaction  where  there  is  merely  an 
exchange  of  commodities  (in  this  case  cash  and  merchandise),  no 
record  is  necessary. 

Ex.  3.  —  H.  R.  Edlund  is  debited  because  it  is  necessary  to  re- 
member that  he  owes  the  business  $1100.00  from  the  transaction; 
hence,  the  record. 

Ex.  4.  —  This  transaction  is  similar  to  Ex.  2,  an  exchange  of 
tangible  values  (merchandise  for  a  note,  a  piece  of  paper).  It  may 
be  asked:  "But  how  are  we  to  remember  that  we  owe  $1500.00  on 
a  note,  when  the  note  itself  is  in  D.  W.  Hoi  ton's  possession  ?  "     We 


i<      ' 


/ 


fir 


SINGLE  ENTRY  BOOKKEEPING 


9 


must  suppose  that  some  memorandum  of  this  note  is  kept,  as  the  stub 
of  a  Notes  Payable  Book.  In  single  entry  books  we  never  find  the 
Notes  Payable  recorded,  and,  in  many  cases,  not  even  the  memoran- 
dum is  made. 

Ex.  6.  — No  Journal  entry  is  made  for  this  transaction  for  the 
reason  given  in  Ex.  2,  as  again  no  obligation  has  been  incurred, 
payment  being  made  immediately. 

Ex.  6.  — See  Ex.  3. 

Ex.  7.  —  See  Ex.  2. 

Ex.  8.  —  See  Exs.  2  and  4.  In  this  instance  the  business  parts 
with  merchandise  and  receives  a  note  which  remains  in  its  possession 
until  paid. 

Ex.  9.  —  It  will  be  noted  in  this  entry  that  Mr.  Kirk  is  debited 
with  only  $75.00,  although  he  actually  withdraws  $100.00.  The 
$25.00  is  not  strictly  a  withdrawal,  but  a  payment  for  services  to 
the  business,  similar  to  the  purchase  of  any  commodity  for  cash,  viz. 
the  painting  (service)  in  Ex.  5.  On  the  other  hand,  the  $75.00 
taken  by  Mr.  Kirk  must  be  looked  upon  as  an  amount  due  to  the 
business,  for  which  he  is  debited. 

Ex.  10.  —  See  Exs.  5  and  9. 

Ex.  11.  —  D.  F.  Payne  is  debited,  because  the  business  liquidates 
in  part  the  debt.  This  payment  to  D.  F.  Payne  is  to  cancel  part  of 
a  debt  due  by  the  business,  an  already  existing  credit ;  hence,  the 
cancellation  must  come  through  a  debit  on  the  books. 

Ex,  12.  —  H.  R.  Edlund  is  credited  because  he  has  liquidated  a 
part  of  his  debt  due  to  the  business.  The  payment  is  to  cancel  part 
of  a  debt  due  to  the  business,  an  already  existing  debit ;  hence,  the 
cancellation  must  come  through  a  credit  on  the  books. 


Ledger  of  Single  Entiy 


Alton  B.  Kirk,  Capital 

Datb 

6 

Explanation 

F. 

Amoumt 

Datk 

6 

Explanation 

F. 

Amount 

1918 

Oct. 

• 

1 

75 

00 

1918 

Oct. 

1 

10000 

00 

• 

« 

i 


10     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


H. 

R.  Edlund 

1913 

4 

• 

1918 

Oct. 

1 

3 

1 
1 

500 
1100 

00 
00 

Oct. 

8 

1000 


00 


James  Garvin 


1913 

Oct. 


500 


00 


D.  F.  Payne 


1918 

Oct 


4 

8 


400 
100 


00 
00 


1918 

lOct. 


600 


00 


Explanation  of  Posting  the  Journal.  —  By  posting  is  meant  the 
transcribing  of  every  debit  or  credit  as  it  appears  in  the  Journal  to 
its  respective  account  in  the  Ledger. 

It  is  very  evident  that  the  purpose  of  our  Ledger  is  to  collect 
under  each  heading  all  the  debits  and  credits  pertaining  to  that  ac- 
count, so  that  we  may  at  any  time  ascertain  the  exact  balance  due  to 
or  by  a  person.  Referring  to  the  illustration,  it  will  be  seen  that  a 
ledger  page  is  made  up  of  two  sides,  namely,  the  left-hand  side  for 
"debits,"  and  the  right-hand  side  for  "credits";  and  in  turn  each 
side  is  subdivided  into  a  series  of  parallel  columns  as  follows  :  the 
first,  for  the  month ;  the  second,  for  the  day  of  the  month ;  the 
third,  for  explanation  (but  of  no  use  in  single  entry  bookkeeping); 
the  fourth,  called  the  "  folio  "  to  designate  the  number  of  the  page  of 
the  Journal  from  which  the  particular  debit  or  credit  is  taken ; 
and  the  fifth  and  sixth  columns,  for  dollars  and  cents,  respectively. ' 

PROBLEM   1 

Journalize  and  post  by  Single  Entry  Bookkeeping  the  following : 

Oct.  1,  1913.  — Adam  Smyth  began  business  with  cash,  $1600. W-  merchandise, 

$  3000.00 ;  an  open  account  against  C.  C.  Cole  for  $  500.00 ; 
and  several  notes  owing  to  him  amounting  to  $900.00i 
Smyth  owed  on  a  note,  $700.00. 


it 


/  / 


SINGLE  ENTRY  BOOKKEEPING 


11 


Oct.  2,  1913. 
Oct.  3,  1913. 
Oct.    4,  1913. 

Oct.  5,  1913. 
Oct.  6,  1913. 
Oct.    8,  1913. 

Oct.  9,  1913. 
Oct.  10,  1913. 
Oct.  13,  1913. 


—  Bought  merchandise  of  N.  N.  Clegg  on  account,  $300.00. 

—  Sold  W.  S.  Weber,  merchandise  on  account,  $520.00. 

—  Bought  lot  of  ground  and  small  store  for  $  1200.00  and  gave  a 

note  in  payment. 

—  Sold  D.  C.  Binns,  merchandise  for  cash,  $240.60. 

—  Paid  freight  and  cartage,  from  cash  drawer,  $22.25. 

—  Sold  J.  C.  Knight,  merchandise  for  $250.00.     Knight   paid 

$150.00  in  cash,  balance  ou  account. 

—  Sold  W.  L.  Dwight,  merchandise  on  account,  $296.00. 

—  Paid  N.  N.  Clegg,  cash  on  account,  $100.00. 

—  Paid  Bookkeeper  salary,  from  the  cash  drawer,  $37.50. 

W.  S.  Weber  paid  his  biU  of  Oct.  3;   by  cash,  $120.00,  and 
his  note  for  the  b^ance. 


PROBLEM  2 

1.  Write  the  following  entries  in  a  Single  Entry  Journal  which 
you  are  to  prepare.     Distinguish  between  debit  and  credit  entries. 

2.  Rule  up  a   Ledger   and  open   the   different  accounts  with 
persons,  four  on  a  page. 

3.  Post  from  the  Journal  to  the  Ledger. 

Oct.    1,  1913.  — E.  D.  Fields  began  business  with  cash,  $4100.00;  real  estate, 

$  5000.00;  notes  in  the  safe,  $  750.00 ;  and  a  debt  against 
J.  Jones   for,  $325.00.     Notes   outstanding  to   creditors, 
$525.00;  ^merchandise  on  hand,  $2825.00. 
Sold  merchandise  for  cash,  $  625.00. 
Oct.    2,  1913.  — Bought   of  E.  P.    Prii,  merchandise   on  account,  $550.00. 

Paid  freight  in  cash,  $12.00. 
Oct.    3,  1913.  — Bought  of  John  James,  consignment  of  goods,  $410.00.     Paid 

$  200.00  in  cash,  balance  on  account.  '• 

Sold  M.  Frank,  merchandise  on  account,  $  175.00. 
Oct.    4,  1913.— Bought  of  S.  Wilson  for  cash,  merchandise,  $725.00.     Sold 

W.  Ayres  bill  of  merchandise,  $  480.00.     Received  cash, 
$  200.00,  and  charged  balance  to  his  account. 
Sold  A.  W.  Macey  an  invoice  'of  goods  for  $  80.00,  on  ac- 
count. 
Oct.    5,  1913.  -^  J.  Jones  paid  his  debt  of  $  325.00. ' 

Paid  E.  P.  Price,  $  250.00  on  account,  and  gave  note  for  balance. 
Sold  Perry  &  Co.,  merchandise,  $300.00.     Received  note  for 
same. 

M.  Frank  paid  bill  of  Oct.  3d  in  cash. 


i!  I 


Oct.  12,  1913. 
Oct.  13,  1913. 


12     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Oct.    6,  1913.  —  Bought  stationery  for  cash,  $  25.00 

Paid  freight  bill  in  cash,  $6.75. 
Purchased  merchandise  of  E.  F.  Star,  $  580.00.     Paid  $  200.00 

cash,  and  balance  by  note. 
Sold  J.  Jones,  merchandise  on  account,  $  800.00. 
Oct.    8,  1913.  —  Paid  rent  for  month  in  cash,  amounting  to  $  150.00. 

Sold  G.  Baird,  merchandise  for  cash,  $  275.00. 
Sold  M.  McKean,  merchandise  on  account,  $  380.00 
Oct.  11,  1913,  — A.  W.  Macey  settled  bill  of  Oct.  4th  by  cash. 

Sold  to  F.  Wood,  merchandise  for  cash,  |  90.00. 
■  W.  Ayres  paid  balance  due  on  his  purchase  of  Oct.  4th. 
■J.  Jones  paid  $  400.00  on  account  of  bill  of  6th  instant. 
Paid  note  of  $  300.00  due  Price,  which  matured  tonlay.    ,    * 
Purchased  lot  for  $1500.00,  paying  $500.00  down  in  cash, 

balance  by  note. 
Bought   horse   and  wagon   of  Philadelphia   Horse   Exchange, 
$  300.00,  on  account. 
Oct.  15,  1913.  —  Perry  &  Co.  purchased  merchandise  on  account,  $80.00. 

Note.  — The  student  should  save  his  solution  to  these  problems  as  they  will  be 
continued  in  later  chapters. 

PROBLEM  8 

Journalize  and  post  by  Single  Entry: 

Oct.  2,  1913.  —  H.  F.  Rice  commenced  business  with : 
Cash 

Real  Estate 
Notes  in  the  safe 
Amount  owed  by  J.  Kelly 
Amount  owed  by  A.  Smart 
•   Notes  outstanding  to  creditors 
Merchandise  on  hand 


SINGLE  ENTRY  BOOKKEEPING 


13 


Oct    5,  1913. 


Oct    6,1913.— 

Oct.    7,1913.— 
Oct.    8,  1913. 
Oct.  10,  1913. 


Oct.  11,  1913.— 


Oct.  12,  1913. 


$7400.00 

6100.00 

450.00 

275.00 

75.00 

725.00 

1735.00 


Oct.  13,  1913.— 


Oct.  14,  1913.— 


Sold  merchandise  for  cash,  $540.00. 
Oct.    3,  1913.  —  Bought  of  S.  Johnson,  merchandise  for  cash,  $265.00. 

Paid  freight  on  above,  $  8.00. 

Bought  of  A.  Wilde,  merchandise  on  account,  $  340.00. 
Oct.    4,  1913.  —  Sold  James  Fish,  merchandise  on  account,  $185.00. 

Sold  F.  Munsey,  bill  of  goods  amounting  to  $  340.00,  receiving 

$140.00  in  cash  and  his  30-day  note  for  balance. 
Had  front  of  building   painted  by  White,  Ledd  &  Co.     Bill 
rendered,  $75.00. 


—  Bought  of  S.  Whittle  Sons,  consignment  of  goods,  $460.00. 
Gave  in  payment  our  30-day  note  for  $300.00,  balance  on 
account. 
Sold  to  James  Rooney,  for  cash,  bill  of  goods,  $  210.00. 
J.  Kelly  paid  his  debt  of  $275.00. 
Sold  George  Ehich  on  account,  invoice  of  goods,  $190.00. 
Paid  A.  Wilde  cash  on  account,  $140.00,  and  gave  him  note  for 

balance. 
Paid  cash  for  advertising,  $80.00. 
Paid  cash  for  office  salaries,  $78.00. 
James  Fish  paid  in  full  his  bill  of  the  4th. 
Paid  for  postage  and  office  supplies,  cash,  $12.00. 
Sold  Samuel  Woolworth  bill  of  merchandise,  $  520.00.    Received 

cash,  $  300.00,  balance  on  account. 
Paid  White,  Ledd  &  Co.'s  bill  of  the  4th. 
A.  Smart  settled  his  account  by  sending  check  for  $  75.00. 
Bought  merchandise  of  Thomas  Phillips,  $  1500.00.     Paid  cash 

receiving  a  discount  of  5  %. 
Bought  stationery,  paying  cash,  $25.00. 
Sold  merchandise  to  James  Gerson,  $320.00.     Received  cash, 

$200.00,  balance  on  account. 
Paid  taxes  by  check,  $  90.00. 

Sold  Peter  Martin,  merchandise  on  account,  $  235.00. 
Sold  real  estate  holdings  to   Star   Realty  Co.  for   $7200.00. 

Received  cash,  $5000.00,  balance  on  account. 
Bought  of  the  Eureka  Motor  Car  Co.,  two  motorcycles,  for  two 
salesmen,  $500.00.     Paid  $100.00  down,  $200.00  in  30 
days,  balance  in  60  days. 
Sold  to  Frank  Yacks  for  cash,  merchandise,  $425.00. 
Purchased  lot  from  S.  Jackson  for  $4000.00,  paying  $1000.00 

down,  balance  by  90-day  note. 
Sold  to  McCreary  &  Co.,  merchandise  on  account,  $160.00. 
Paid  office  salaries,  $78.00. 


I 


CHAPTER   III 

PROFIT  AND  LOSS   IN  SINGLE  ENTRY  BOOKKEEPING 

We  have  kept  Mr.  Kirk's  records  in  the  Journal  in  the  order  of 
their  occurrence  and  later  collected  them  under  their  respective 
headings  in  the  Ledger ;  now,  assuming  that  Mr.  Kirk  has  com- 
pleted  a  given  period  in  his  business,  he  is  desirous  of  ascertaining 
his  present  worth  and  his  profit  or  loss.  Is  it  possible  to  accom- 
phsh  this  from  the  books  ?  Certainly  not,  as  elements  other  than 
personal  accounts  must  necessarily  be  considered.  These  elements, 
together  with  the  Ledger  Accounts,  may  be  classified  into  two 
mam  groups,  viz.  Assets  and  Liabilities. 

Assets.— An  asset  is  any  item  of  value  owned  by  the  business, 

(a)    either  existing  in  tangible  form,  or 

(J)   owing  to  the  business. 

For  example : 

(a)    Cash,  merchandise,  land,  buildings,  machinery,  or  notes  re- 
ceivable, or 
(5)    Personal  accounts  with  debit  balances. 

LiabiHties.  — A  liability  is  any  debt  or  obligation  of  the  busi- 
ness, as : 

(a)   Notes  payable.  ^ 

(5)    Personal  accounts  with  credit  balances.^ 

Cash.  —  Cash  is  money,  or  that  which  can  be  turned  into  money 
without  delay,  bargain,  or  litigation.  It  consists  of  such  items  as  • 
money  in  bank,  or  on  hand,  checks,  sight  or  demand  drafts,  and 
money  orders. 

Merchandise.  —  Merchandise  is  goods  manufactured  or  purchased 
for  the  purpose  of  being  sold  at  a  profit. 

Inventory.  —  An  inventory  is  the  investigation  of  an  asset  for  the 
purpose  of  ascertaining  its  quantity,  quality,  and  value,  presented  in 
the  form  of  a  detailed  list  or  schedule.  Thus,  a  Merchandise  Inven- 
tory is  the  tabulation  of  the  goods  on  hand,  indicating  the  number, 
quality,  and  value,  usually  taken  at  cost. 

14 


PROFIT  AND  LOSS  IN  SINGLE  ENTRY  BOOKKEEPING     15 

Notes  Receivable  and  Notes  Payable.  —  "A  promissory  note  is  an 
unconditional  promise  in  writing  made  by  one  person  to  another  and 
signed  by  the  maker,  engaging  to  pay  on  demand  or  at  a  fixed  or  de- 
terminable future  time,  a  certain  sum  in  money,  to,  or  to  the  order 
of,  a  specified  person  or  bearer." 

When  a  note  is  received  by  the  business,  it  is  a  notes  receivable  ; 
when  issued  by  the  business,  it  is  a  notes  payable.  For  more  de- 
tailed discussion  of  notes  receivable  and  payable,  see  Chapter  VIII. 

Present  Worth.  —  Thus,  to  find  Mr.  Kirk's  present  worth  and 
his  profit  or  loss,  it  is  first  necessary  to  present  a  statement  of  his 
assets  and  liabilities.  The  form  usually  adopted  is  to  list  all  of  the 
assets  on  the  left-hand  side,  and  all  of  the  liabilities  on  the  right- 
hand  side.  Thus  it  is  seen  that  in  a  solvent  business  the  asset  side 
must  necessarily  be  the  larger,  and  a  balance  must  result.  This  bal- 
ance comes  to  be  known  as  the  "Present  Worth";  or,  expressing 
the  above  form  in  an  equation  : 

Assets  —  Liabilities  =  Present  Worth 

Present  Worth  is  the  value  of  a  business  at  any  time,  or,  in 
other  words,  is  the  difference  between  what  it  owns  (assets)  and 
what  it  owes  (liabilities). 

Collection  of  Assets.  —  The  preliminary  steps  to  the  presentation 
of  the  assets  are  as  follows : 

1.  Count  cash  in  till,  safe,  and  bank. 

2.  Take  an  inventory  of  the  merchandise  on  hand. 
8.    Total  the  notes  receivable. 

4.  Total  all  the  accounts  in  the  Ledger  having  debit  balances, 

hereafter  to  be  termed  "  Accounts  Receivable." 

5.  Appraise,  estimate,  or  ascertain  the  respective  values  of  all 

other  assets. 

Collection  of  Liabilities.  —  The  liabilities  are  ascertained  as 
follows : 

1.  Total  all  the  accounts  in  the  Ledger  having  credit  balances, 

hereafter  to  be  termed  "  Accounts  Payable." 

2.  Total  the  notes  payable  as  found  on  the  stubs  of  the  Notes 

Payable  Book,  or  from  any  other  memoranda. 
8.    Ascertain  the  value  of  any  other  liabilities,  such  as  loans,  or 

mortgages  payable. 
We  are  now  ready  for  an  illustrative  Statement  of  Assets  and 
Liabilities  for  the  business  of  Alton  B.  Kirk.     Working  along  the 
lines  given  above,  we  find  the  following : 


"^ji2|_jtafc!||^^ 


1 


1 


16     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Store  and  Lot 

Horse  and  Wagon 

Cash 

Notes  Receivable 

Inventory  of  Merchandise 

Notes  Payable 


$4600.00 

250.00 

3286.00 

1750.00 

700.00 

1500.00 


From  the  Ledger  we  find  that  H.  R.  Edlund  has  a  debit  balance 
of  $600.00,  and  James  Garvin  a  debit  balance  of  1500.00,  which  we 
shall  classify  as : 

Accounts  Receivable,  $1100.00 

On  the  Ledger  we  also  find  D.  F.  Payne's  Account  has  a  credit 
balance  of  $100.00,  which  we  shall  classify  as : 

Accounts  Payable,  $100.00 


Statement 


Assets 


Liabilities 


Store  and  Lot 

Horse  and  Wagon 

Notes  Receivable 

Inventory  of  Mdse. 

Cash 

Accounts  Receivable 


4600 
250 

1750 
700 

3286 

1100 


11686 


00 
00 
00 
00 
00 
00 


00 


Notes  Payable 
Accounts  Payable 


Present  Worth 


Explanation  of  Statement.  —  The  foregoing  Statement  shows  that 
Alton  B.  Kirk  is  worth  at  tliis  time  $10086.00.  Thus,  knowing  his 
Present  Worth,  we  proceed  to  find  his  profit  or  loss  by  comparing 
this  amount  with  his  net  investment  in  the  business.  We  find  this 
in  Mr.  Kirk's  account  in  the  Ledger,  which  shows  a  credit  balance 
of  $  9925.00.  Since  Mr.  Kirk  is  worth  more  to-day  than  the  actual 
amount  he  put  into  the  business  and  kept  there,  the  difiFerence  must 
be  his  profit,  in  this  case  $161.00.  Expressing  the  above  as  an 
equation,  we  have  : 

Present  Worth  —  Net  Investment  =  Gain 

or 
Net  Investment  —  Present  Worth  =  Loss 


( 


PROFIT  AND  LOSS  IN  SINGLE  ENTRY  BOOKKEEPING     17 

It  is  well  to  note  carefully  that  the  net  investment  mentioned 
above  is  the  $10000.00  originally  invested  by  Alton  B.  Kirk,  minus 
the  $76.00  he  subsequently  withdrew,  because  withdrawals  must 
always  be  considered  in  order  to  ascertain  the  gain  or  loss.  In  the 
case  of  a  business  of  more  than  a  year's  standing,  the  following 
equations  may  be  of  assistance: 


Present  Worth  — 


Past  Worth  —  Withdrawal 
or  -f  additional  Investments 
'        or 


=  Profit 


Past  Worth  —  Withdrawals  or 
+  Additional  Investments 


—  Present  Worth  =  Loss 


We  have  now  completed  all  of  Single  Entry  Bookkeeping  in  so 
far  as  it  is  possible  to  construct  logically  an  indefinite  subject.  Do 
not  imagine  that  what  we  have  discussed  covers  every  Single  Entry 
set  we  may  happen  upon,  as  we  have  worked,  out  a  system  only  upon 
the  theory  of  the  single  entry.  In  practice,  we  find  sets  of  this  kind 
containing  Cash  Books,  Sales  Books,  Invoice  Books,  and  many  other 
encroachments  on  double  entry.  But  in  any  Single  Entry  set,  it 
must  be  remembered  that  in  ascertaining  the  present  worth  or  profit 
or  loss,  the  books  give  only  a  part  of  the  information  necessary; 
and  in  attempting  to  produce  the  result,  the  rest  of  the  information 
must  be  gathered  by  observation  and  interviews  with  the  bookkeeper 
or  proprietor,  preferably  following  the  outline  given  earlier  in  the 
Chapter  on  the  collection  of  assets  and  liabilities. 

Comparison  with  Double  Entry  Bookkeeping 

Advantages.  —  We  cannot  say  that  Single  Entry  Bookkeeping,  in 
comparison  with  Double  Entry  Bookkeeping,  has  any  advantages  to 
the  commercial  establishment.  To  certain  professional  men,  trustees, 
and  charitable  institutions,  single  entry  is  sufficient,  as  in  many  cases 
they  are  not  interested  in  profits  and  losses,  but  only  in  personal 
accounts  and  cash,  and  use  only  a  Cash  Book  for  original  records. 
To  them  Single  Entry  Bookkeeping  may  appeal  for  its  simplicity  in 
recording. 

Disadvantages.  —  In  this  comparison  Single  Entry  Bookkeeping 
has  many  disadvantages,  of  which  we  will  mention  some  of  the  more 
evident. 


,:.t 


18     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

1.  The  possibility  of  omitting  a  debit  or  a  credit. 

2.  The  possibility  of  making   a  debit  instead  of  a  credit,  and 

vice  versa, 

3.  The  possibility  of  a  mistake  in  figures. 

4.  The  incompleteness  of  a  record  of  personal  accounts  only. 

5.  The  impossibility  of  procuring  from  the  records  a  statement 

of  profit  and  loss. 

6.  The  lack  of  means  of  proving  the  correctness  of  its  records, 

or  statements. 

PROBLEM  4 

Resuming  the  business   as   per   transactions   in  Problem   2,  the 
assets  and  liabilities  not  shown  by  the  Ledger  are: 

Cash  $4181.25 

Merchandise  Inventory  1900.00 

Real  Estate  6500.00 

Horses  and  Wagons  300.00 

Notes  Receivable  1050.00 

Notes  Payable  1825.00 

Find  the  loss  or  gain  in  the  above  business. 


Journalize 
Oct.  19,  1913.- 


Oct.  20,  1913.— 

Oct.  21,  1913.— 

Oct.  22,  1913.— 

Oct.  23,  1913.— 
Oct.  24,  1913.— 

Oct.  25,  1913.— 


PROBLEM  6 

and  post  by  Single  Entry  Bookkeeping  the  following: 

-Oliver  Harris  began  business,  investing  cash,  $2000.00;  mer- 
chandise, $1600.00;  real  estate,  $5000.00;  an  open  ac- 
count against  B.  Smith  for  $400.00;  and  notes  owing  to 
him  amounting  to  $800.00.  Harris  owed  on  a  note, 
$400.00. 
-Bought  stationery  for  cash,  $25.00. 

Bought  merchandise  for  cash  from  N.  N.  Clegg,  $400.00. 
-  Oliver  Harris  withdrew  his  weekly  salary  of  $  25.00. 

Sold  merchandise  to  W.  H.  Dunn  on  account,  $750.00. 
-Sold   merchandise   to  J.    Haines,   $250.00.      Received   cash, 

$  100.00,  and  Haines's  note  for  the  balance. 
-B.  Smith  paid  cash  on  account,  $200.00. 
-Paid  outstanding  note  for  $400.00. 
Sold  merchandise  to  L.  Schwartz  on  account,  $700.00. 
Sold  merchandise  to  H.  Denny  on  account,  $300.00. 
Purchased  merchandise  from  C.  Gilbert  on  account,  $340.00. 
Purchased  merchandise  from  S.  Johnson,  $600.00.     Paid  him 
$200.00  in  cash,  balance  on  account. 


PROFIT  AND  LOSS  IN  SINGLE  ENTRY  BOOKKEEPING     19 

A  week  having  passed,  Oliver  Harris  wishes  to  know  his  present 
worth  and  the  amount  his  business  has  made  or  lost  during  the 
week.     The  facts  not  shown  by  the  books  are  : 

Cash 

Merchandise 
Real  Estate 
Notes  Receivable 


$1250.00 

1040.00 

5000.00 

950.00 


Oct.  26,  1913. 
Oct.  27,  1913. 


Harris  has  also  withdrawn  during  the  week  f  20.00  worth  of  mer- 
chandise. Using  these  facts  in  conjunction  with  the  books,  find 
the  present  worth  and  the  real  profit  or  loss  of  this  business. 

PROBLEM   6 

Journalize  and  post  by  Single  Entry  Bookkeeping  the  following : 

Oct.  24,  1913.  —  N.  Hart  began  business,  investing  cash,  $  2500.00 ;  merchandise, 

$1200.00;  an  account  receivable  against  L.  Schwartz  for 
$500.00  ;  real  estate,  $4000.00 ;  notes  receivable,  $800.00. 
N.  Hart  brought  into  the  business  several  notes  payable, 
amounting  to  $  500.00. 
Bought  merchandise  from  N.  H.  Lewis  for  cash,  $  200.00. 
Bought  merchandise  from  L.  McLean  on  account,  $  250.00. 
Paid  freight  on  above  by  check,  $  15.00 
Oct.  28,  1913.  —  Sold  merchandise  on  account  to  B.  Knight,  $400.00. 
Oct.  29,  1913.  —  Purchased  merchandise  from  P.  Davis,  $  600.00.     Paid  $  100.00 

in  cash,  note  for  balance. 
Purchased  $  10.00  worth  of  stationery  for  cash.. 
Oct.  30,  1913.  —  L.  Schwartz   gave   his  note   for  $250.00  on  account   of  the 

amount  due  by  him. 
Oct.  31,  1913.  —  Sold  merchandise  to  A.  Pemrose  on  account,  $750.00.     Re- 
ceived cash  in  payment  of  a  Notes  Receivable,  $  300.00. 
Having  completed  one  week's  business,  N.  Hart  wishes  to  know 
the  value  of  his  business  and  the  amount  of  profit  or  loss  for  the 
week.     In  addition  to  what  his  books  show,  he  has  the  following  : 

Cash  $  2475.00 

Merchandise  1225.00 

Real  Estate  4000.00 

Notes  Receivable  750.00 

Notes  Payable  1000.00 

N.  Hart  states  that  there  is  due  him  in  weekly  salary  for  running 
the  business  $  25.00,  which  he  has  not  yet  taken. 
Find  the  profit  or  loss  of  the  business. 


V 


I 


20     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

PROBLEM   7 

Find  the  profit  and  loss  from  the  following  statement  of  a 
Single  Entry  set  of  books  of  a  business  owned  by  Jno.  Smith  and 
Henry  James,  who  have  invested  equal  amounts  of  capital,  and  are 
to  share  profits  and  losses  equally. 


Joint  Capital 

$  48000.00 

Jno.  H.  Black,  Dr. 

2650.00 

B.  S.  Adams,  Dr. 

3200.00 

B.  H.  Brown,  Dr. 

2975.00 

P.  H.  Noyer,  Cr. 

1775.00 

M.  L.  Green,  Cr. 

4700.00 

Cash 

12500.00 

Real  Estate 

36000.00 

Merchandise  Inventory 

4870.00 

Notes  Receivable 

2200.00 

Notes  Payable 

1730.00 

PROBLEM   8 

Boyer  &  King,  who  have  been  keeping  their  books  by  Single 
Entry  Bookkeeping,  present  you  with  the  following  facts  and  ask 
you  to  ascertain  their  profit  or  loss  and  the  present  worth  of  each 
partner  as  of  this  date.  Partners  share  profits  and  losses  as  follows : 
Boyer,  60  %  ;  King,  40  %. 


Boyer  Investment 
Boyer  Withdrawals 
King  Investment 
King  Withdrawals 
Accounts  Receivable 
Accounts  Payable 
Notes  Receivable 
Notes  Payable 
Cash 

Merchandise  Inventory 
Real  Estate 
Fixtures 

PROBLEM  9 


18500.00 

250.00 

7000.00 

200.00 

6400.23 

4900.20 

8460.90 

5290.23 

5983.42 

8590.00 

1800.00 

400.00 


W.  L.  French,  a  retailing  stationer,  whose  books  have  been  kept 
by  Single  Entry  Bookkeeping,  calls  in  an  accountant  to  prepare  a 
Statement  of  Profit  and  Loss  up  to  this  time.  The  books  and  records 
show  the  following: 


PROFIT  AND  LOSS  IN  SINGLE  ENTRY  BOOKKEEPING     21 


W.  L.  French 
Cash 

Merchandise 
Accounts  Receivable 
Fixtures 

Accounts  Payable 
Notes  Payable 


$25000.00 
5000.00 
13000.00 
14200.00 
1710.00 
5270.00 
3200.00 


Mdse.  taken  by  French  for  personal  use       1250.00 
The  capital  stated  above  is  the  balance  after  $1200.00  salary  has 
been  charged  to  it.     Mr.  French  withdrew  11600.00  not  salary,  but 
did  not  charge  it  to  capital. 

PROBLEM  10 

A.  Kyle  and  B.  Jackson,  partners  in  a  retail  business,  have  been 
keeping  their  books  by  Single  Entry  Bookkeeping,  and  they  give  us 
the  following  facts  from  their  Ledger  and  records,  and  ask  us  to  show 
their  profit  or  loss  under  Single  Entry,  and  the  present  worth  of  each 
partner.  Partners  share  profits  and  losses  as  follows :  Kyle,  60  %  ; 
Jackson,  40  %. 

A.  Kyle,  Original  Investment 

A.  Kyle,  Withdrawals 
.  B.  Jackson,  Original  Investment 

B.  Jackson,  Withdrawals 
Cash 

Merchandise 
Real  Estate 
Notes  Receivable 
Notes  Payable 
Accounts  Receivable 
Accounts  Payable 
Fixtures 

PROBLEM  11 

Continuing  the  business  as  per  transactions  in  Problem  3,  the 
assets  and  liabilities  not  shown  by  the  Ledger  are  as  follows: 

Cash  $12543.13 

Merchandise  Inventory  300.00 

Real  Estate  4000.00 

Motorcycles  500.00 

Notes  Receivable  450.00 

Notes  Payable  4500.00 
Find  the  loss  or  gain  in  the  above  business. 

1/ 


$22000.00 

450.00 

19000.00 

350.00 

7600.00 

17000.00 

10000.00 

6200.00 

4750.00 

5513.00 

8620.00 

2500.00 


CHAPTER  IV 

DOUBLE  ENTRY  BOOKKEEPING 

The  striking  characteristic  of  Single  Entry  Bookkeeping,  as 
brought  out  in  our  discussion  of  the  previous  chapter,  was  the  record- 
ing of  either  a  single  debit  or  single  credit  for  certain  transactions, 
and  we  saw  the  manifold  objections  to  such  a  system. 

Definition.  —  But  now  we  come  to  that  more  exact  art  "Double 
Entry  Bookkeeping,"  which,  as  the  name  implies,  provides  for  a 
double  entry,  namely,  a  debit  and  credit  for  every  transaction.  It 
is  this  equalization  of  debit  and  credit  in  each  transaction,  which, 
maintained  throughout  all  double  entry,  guarantees  the  mathe- 
matical accuracy,  which  is  its  salient  feature. 

Since  Double  Entry  Bookkeeping  requires  a  debit  and  a  credit 
for  every  entry,  it  must  necessarily  embody  more  than  personal 
accounts.  Thus,  we  find  that  Double  Entry  Bookkeeping  treats 
of  two  classes  of  accounts,  viz.  financial  and  nominal. 

Financial  Accounts  are  Asset  and  Liability  Accounts,  including 
thereunder  all  Personal  and  Property  Accounts. 
Personal  Accounts  are  those  with  persons. 

Property  Accounts  represent  tangible  things  of  value  in  the 
business,  such  as  cash,  real  estate,  machinery,  etc. 

Nominal  Accounts  are  "explanation"  accounts  which  explain 
the  sources  of  our  gains  and  losses,  reflected  in  the  increases  and 
decreases  of  our  assets  and  liabilities.  Such  accounts  are  :  Interest, 
Discount,  Commission,  Wages,  etc. 

The  fundamental  books  of  Double  Entry  Bookkeeping  are  the 
Journal  and  the  Ledger.  It  will,  however,  be  found  necessary 
to  use  additional  books  as  the  subject  progresses. 

The  Journal  is  a  book  of  original  entry  or  first  record,  containing 
the  names  of  the  accounts  to  be  debited  and  credited,  with  such 
explanation  under  each  as  may  be  warranted.  The  ruling  o^  the 
Double  Entry  Journal  is  identical  with  the  form  given  for  the 
Single  Entry,  but  it  differs  in  that  the  two  columns  on  the  extreme 
right  are  used  for  debit  and  credit,  respectively. 

22 


DOUBLE  ENTRY  BOOKKEEPING 


23 


I 


The  Ledger  is  a  book  of  final  record  containing  a  series  of  head- 
ings, each  of  which  is  the  name  of  some  account  under  which  we 
summarize  the  debits  and  credits  to  that  account  as  found  in  our 
Journal,  or  other  book  of  original  entry. 

Of  the  two  books  mentioned  above,  the  Journal,  or  other  book 
of  original  entry  based  upon  its  principles,  is  the  more  important 
legally,  because  it  is  the  book  recognized  as  evidence  in  a  court 
of  law. 

We  cannot  therefore  lay  too  much  stress  upon  the  principle 
involved  in  the  Journal,  for  it  is  here  that  we  create  the  accounts 
which  afterwards  are  to  reveal  to  us  the  history  of  our  business ; 
and  so  it  is  necessary  at  this,  our  initial  step,  to  differentiate  properly 
between  the  accounts  to  be  debited  and  credited,  and  to  be  assured 
that  each  entry  preserves  the  balance  essential  to  our  system.  This 
process  is  commonly  known  as  journalizing. 

Journalizing  is  the  classifying  of  the  debits  and  credits  of  each 
transaction. 

For  the  proper  classification  of  our  accounts,  it  is  necessary  to 
have  recourse  to  certain  well-defined  axioms  of  bookkeeping,  as 
follows : 

Every  debit  must  have  its  equal  and  corresponding  credit. 
Every  credit  must  have  its  equal  and  corresponding  debit. 

RULES  FOR  JOURNALIZING 

Debit  Rule.  —  Debit  whatever  comes  into  the  business  or  costs  the 
business  value. 

Credit  Rule.  —  Credit  whatever  goes  out  of  the  business  or  pro- 
duces value  to  the  business. 

A  much  broader  and  more  generally  applicable  rule  is 

Cole's  Responsibility  Rule 

Debit  the  account  which  assumes  a  responsibility. 

Credit  the  account  which  shifts,  gives  up,  or  grants  a  responsi- 
bility. 

The  basis  of  this  rule  is  the  personification  of  the  accounts.  It 
assumes  that  such  accounts,  as  Property  and  Explanation  Accounts,  as 
well  as  Personal  Accounts,  can  be  held  responsible  for  the  increases  or 
decreases  of  the  assets  or  liabilities,  and  that  every  transaction  simply 
involves  the  assuming  or  shifting  of  this  responsibility  between  the 
accounts. 


I 


I 


ri 


24     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Of  the  two  rules  given,  Cole's  is  the  more  comprehensive  and 
will  be  used  throughout  the  illustrations. 

Illustration.  —  To  illustrate  the  application  of  the  responsibility 
rule  to  other  than  Personal  Accounts :  The  cashier  of  the  business 
has  |!  1000.00  in  the  safe  for  which  he  is  responsible  to  the  business. 
This  is  indicated  on  the  books  by  a  debit  to  Mr.  Cashier  ;  and  as 
money  is  received  into  the  business  his  responsibility  is  increased 
proportionately,  and  as  money  is  paid  out,  his  responsibility  is  de- 
creased in  like  ratio,  or  he  may  be  said  to  shift  the  responsibility 
elsewhere  for  the  amount  paid  out.  We  have  taken  this  example  of 
the  cashier  as  personifying  the  Cash  Account.  Similarly,  when  cash 
is  received,  the  Cash  Account,  assuming  the  responsibility,  is 
debited ;  and  when  cash  is  paid  out,  the  Cash  Account,  having  given 
up  its  responsibility,  is  credited.  In  like  manner  we  can  hold  re- 
sponsible such  accounts  as  Land,  Merchandise,  Machinery,  Notes 
Receivable,  Notes  Payable,  Expense  Accounts,  etc. 

To  make  an  entry,  one  should  always  picture  the  transaction  in 
his  mind's  eye,  so  as  to  determine  : 

1.  The  captions  or  headings  for  the  accounts  which  will  in  the 

future  convey  the  character  of  the  transaction. 

2.  Which  of  the  accounts  has  assumed  or  shifttg^  tl^e  responsi- 

bility. *" 

To  illustrate  the  rules  for  journalizing,  take  the  following 
transactions  : 


Oct.  1, 1913. —    1.   Alton  B.  Kirk  commences  the  general  merchandise  business 

this  day,  investing  as  follows : 


Store  and  Lot 
Horse  and  Wagon 
Cash 

Note  of  S.  Dietrich  &  Co. 
Claims  against  Henry  R.  Edlund 
and  James  Garvin,  each  for 


14600.00 

250.00 

4000.00 

750.00 

500.00 


The  business  assumes  an  obligation  to  D.  F.   Payne  for 
$600.00. 
Oct.  3,  1913.—   2.   Purchase  merchandise  from  D.  W.  Holton,  cash,  $2000.00. 

3.  Sell  merchandise  to  Henry  R.  Edlund,  on  account,  $  1 100.00. 

4.  Purchase  from  D.  W.  Holton,  merchandise,  $1500.00. 

Give  Holton  a  30-day  note  in  payment. 


DOUBLE  ENTRY  BOOKKEEPING 


25 


5 


Oct.  4,  1913.  —   5.    Pay  the  Carmine  Paint  Co.  for  painting  storey  $100.00. 

6.  Sell  merchandise  to  D.  F.  Payne,  on  account,  $400.00. 

7.  Sell  merchandise  to  Harrison  F.  Reeder,  for  cash,  $600.00. 

8.  Sell  merchandise  to  Philip  DeKuil  &  Co.,  $1000.00. 
Receive  30-day  note  in  settlement. 

Oct.  6,  1913. —   9.   A.  B.  Kirk,  proprietor,  receives  $100.00  from  the  business, 

of  which  $  25.00  is  salary. 

10.  Pay  the  clerk  his  weekly  salary,  $14.00. 

11.  Pay  D.  F.  Payne,  on  account,  $100.00. 

12.  Receive  from  Henry  R.  Edlund,  to  apply  on  his  account, 

check  for  $1000.00. 


•  « 

« 


Double  Entry  Journal 

October  1,  191.3 


Dr. 


Or. 


Ex.1 

Store  and  Lot 

Horse  and  Wagon 

Cash 

Notes  Receivable 

H.  R.  Edlund 

James  Garvin 

Alton  B.  Kirk,  Capital 
Commence  the  General  Merchandise  Busi- 
ness, investing  the  above 
Alton  B.  Kirk 

D.  F.  Payne 
Being  debt  assumed  by  business 

4600 

250 

4000 

.750 

500 

500 

600 

00 
00 
00 
00 
00 
00 

00 

10600 
600 

00 
00 

Ex.2 

t 
Merchandise 

Cash 

Purchase  from  D.  W.  Holton 

2000 

00 

2000 

00 

Ex.3 

H.  R.  Edlund 

Merchandise 
Sale  of  Merchandise  on  account 

1100 

00 

1100 

00 

Ex.4 

Merchandise 

Notes  Payable 
Purchase  of  Mdse.  from  D.  W.  Holton 
30 -day  note  given  in  payment 

1500 

00 

1500 

00 

Ex.5 

i 
Expense 

100 

00 

• 

Cash 
Payment  of  Carmine  Paint  Co.  for  painting 
store 

100 

00 

Ex.6 

D.  F.  Payne 

Merchandise 
Sale  of  Merchandise  on  account 

400 

00 

400 

00 

26    A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


DOUBLE  ENTRY  BOOKKEEPING 


27 


Ex.7 

Cash 

Merchandise 
Sale  of  Mdse.  to  Harrison  F.  Reeder 

600 

00 

600 

00 

Ex.8 

Notes  Receivable 

Merchandise 
Sale  of  Mdse.  to  Philip  DeKuil  &  Co. 
Their  30-day  note  received  in  payment 

1000 

00 

1000 

00 

Ex.9 

6 

Expense 

Alton  B.  Kirk 

Cash 
A.  B.  Kirk*8  withdrawal  of  salary,  f  25.00 
and  also  175.00  for  private  use 

25 
75 

00 
00 

100 

00 

E^.10 

Expense 

Cash 
Payment  of  clerk's  weekly  salary 

0^ 

14 

00 

14 

00 

Ex.11 

8 

D.  F.  Payne 

Cash 
Payment  to  apply  on  account 

100 

00 

100 

00 

Ex.12 

Cash 

H.  R.  Edlund 
Check  received  to  apply  on  account 

1000 

00 

1000 

00 

I 


Explanation  of  Illustrative  Journal 

Ex.  1.  —  This,  it  will  be  noted,  is  a  compound  Journal  entry,  illus- 
trating that  the  two  sides  of  our  entry  may  be  composed  of  several 
items,  provided  always  that  their  sums  be  equal.  Store  and  Lot, 
Horse  and  Wagon,  Cash,  Notes  Receivable,  H.  R.  Edlund,  and 
James  Garvin  are  separately  debited  with  their  respective  amounts, 
these  amounts  appearing  in  the  debit  column  because  each  account 
is  now  responsible  to  the  business  for  the  given  amount.  Alton 
B.  Kirk  is  credited,  having  given  up,  or  granted,  $10600.00  of  value, 
assumed  by  the  separate  debit  accounts.  Alton  B.  Kirk  is  debited 
with  f  600.00  because  he  is  responsible  for  the  business  having  a 
liability  of  $600.00  to  D.  F.  Payne,  whose  account  is  credited  be- 
cause it  has  granted  Alton  B.  Kirk's  account  responsibility. 

Ex.  2.  —  This  is  simply  an  exchange  of  assets  by  which  merchan- 
dise assumes  the  responsibility  shifted  to  it  by  cash;  hence,  the 
debit  and  credit. 

Ex.  3.  —  H.  R.  Edlund  is  debited  because  he  is  now  responsible 
for  the  value  of  the  merchandise  gone  out  of  the  business,  the  reponsi- 
bility  of  which  has  been  given  up  by  the  merchandise  (credit). 


Ex.  4.  —  This  is  an  exchange  of  an  asset  for  a  liability,  by  which 
the  asset  Merchandise  assumes  a  responsibility  (debit),  granted  to  it 
by  the  liability.  Notes  Payable  (credit). 

Ex.  5.  —  Expense  is  responsible  for  (debit)  and  explains  the  ex- 
penditure of  cash,  the  value  of  which  has  been  shifted  (credit). 

Ex.  6.  —  See  Ex.  3. 

Ex.  7.  —  Similar  to  Ex.  2,  except  that  cash  has  here  assumed 
the  responsibility  granted  by  merchandise. 

Ex.  8.  —  Again  an  exchange  of  assets  by  which  a  written  promise  to 
pay  is  made  to  assume  a  responsibility  formerly  held  by  Merchandise. 

Ex.  9.  —  Another  illustration  of  a  compound  entry  by  which  the 
accounts  Expense  and  Alton  B.  Kirk  are  responsible  (debit)  for  the 
f  100.00  granted  them  by  the  account  Cash  (credit). 

Ex.  10.  —  See  Ex.  5. 

Ex.  11.  —  D.  F.  Payne  is  debited  because  he  is  responsible  for 
the  granting  to  him  of  $100.00  in  cash  (credit). 

Ex.  12.  —  Cash  has  assumed  a  new  responsibility  for  $1000.00  ; 
hence,  the  debit.  H.  R.  Edlund  having  granted  cash,  has  shifted  his 
responsibility,  and  his  account  is  credited. 

Posting.  —  The  next  step  after  journalizing  is  to  post  the  debits 
and  credits  to  their  respective  accounts  in  the  Ledger,  the  procedure 
being  identical  with  that  of  Single  Entry  Bookkeeping,  though,  of 
course,  the  ledger  now  includes  both  financial  and  nominal  accounts. 
The  proper  time  to  post  naturally  depends  upon  the  particular  busi- 
ness, but  it  is  always  preferable  to  have  the  day's  entries  posted  the 
same  day,  or,  at  the  latest,  the  next,  so  that  the  bookkeeper,  at  a 
moment's  notice,  can  give  a  statement  of  any  account. 

We  are  now  ready  to  post  the  Journal. 

Double  Entry  Ledger 
Alton  B.  Kirk,  Capital 


1918 

1918 

Oct. 

1 
6 

J 

1 
1 

600 
75 

675 

00 

00 

00 

Oct. 

1 

J 

1 

10600 

00 

Store  and  Lot 


1913 

Oct. 


4600 


00 


28     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Horse  and  Wagon 


1918. 

Oct. 


t 


I 


250 


00 


Cash 


1918 

1913 

Oct. 

1 

J 

1 

4000 

00 

Oct. 

3 

J 

2000 

00 

4 

1 

600 

00 

4 

100 

00 

8 

1 

1000 
5600 

00 

00 

6 
6 

8 

100 

14 

100 

S814 

00 
00 
00 

00 

Notes  RECEiVi^ 

iBLE 

1913 

Oct. 

1 
4 

J 

1 
1 

750 
1000 

1750 

00 
00 

00 

H. 

R.  Edlund 

1913 

1918 

Oct. 

1 

3 

J 

1 
1 

500 
1100 

1600 

00 
00 

00 

Oct. 

8 

J 

1 

1000 

00 

Jambs  Garvin 

1913 

Oct. 

1 

J 

1 

500 

00 

D. 

F. 

Payne 

1918 

1918 

Oct. 

4 

8 

J 

1 
1 

400 
100 

500 

00 
00 

00 

Oct. 

1 

J 

1 

600 

00 

DOUBLE  ENTRY  BOOKKEEPING 


29 


Merchandise 

1918 

1918 

Oct 

3 

J 

1 

2000 

00 

Oct. 

3 

J 

1 

1100 

00 

1 

1500 

00 

4 

1 

400 

00 

8600 

00 

4 
4 

1 
1 

600 
1000 

3100 

00 
00 

00 

1 

Notes  Payable 

1918 

Oct. 

3 

J 

1 

1500 

00 

Expense 

1918 

Oct. 

4 
6 
6 

J 

1 

1 
1 

100 
25 
14 

189 

00 
00 
00 

00 

Explanation  of  Illustrative  Ledger 

In  constructing  the  Ledger  we  take  the  entries  as  they  occur, 
posting  first  the  debit  side  and  then  the  credit  side  of  each  individual 
transaction.  In  each  instance  we  note  first  in  the  Journal  folio 
column  the  number  of  the  page  of  the  Ledger  on  which  the  account 
appears;  and  at  the  same  time  note  in  the  Ledger  folio  column  the 
number  of  the  page  of  the  Journal  from  which  the  debit  or  credit  is 
taken.  These  folio  columns  act  as  a  double  check,  facilitating  the 
location  of  errors  as  they  occur.  The  "  J,"  the  initial  letter  of  the 
word  "  Journal,"  is  placed  in  each  account  to  indicate  that  the  entry 
has  come  from  that  book. 

"Alton  B.  Kirk,  Capital,"  the  proprietor's  account,  is  pl^ed 
first  in  the  Ledger  as  a  matter  of  custom.  The  arrangement  of 
the  other  accounts  is  discretionary,  although  as  they  increase  in 
number  it  is  preferable  to  segregate  the  Financial  and  Nominal  Ac- 
counts. 

It  is  common  usage  to  allow  at  least  one  page  to  an  account. 


f 


1 


-  — lUi^-t^ 


30      A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


DOUBLE  ENTRY  BOOKKEEPING 


31 


Journalize 
Oct.    1,1913.- 


M 


Oct.  2,  1913. 
Oct.  3,  1913. 
Oct.  4,  1913. 

Oct.  5,  1913. 
Oct.  6,  1913. 
Oct.  8,  1913. 

Oct.  9,  1913. 
Oct.  10,  1913. 
Oct.  13,  1913. 
Oct.  13,  1913. 


PROBLEM   12 

and  post  by  Double  Entry  Bookkeeping  the  following : 

-James  Willing  began  business  with  cash,  $1600.00;  merchan- 
dise, $2000.00:  an  open  account  against  C.  C.  Cole  for 
$500.00;  and  several  notes  owing  to  him  amounting  to 
$900.00.     Willing  owed  on  a  note,  $700.00. 

-  Bought  merchandise  of  N.  N.  Clegg  on  account,  $300.00. 
-Sold  W.  S.  Dunn,  merchandise  on  account,  $520.00. 
-Bought  lot  of  ground  and  small  store  for  $1200.00  and  gave  a 

note  in  payment. 
-Sold  H.  C.  Binns,  merchandise  for  cash,  $240.60. 
-Paid  freight  and  cartage  from  cash  (h-awer,  $22.65. 
-Sold  J.    C.  Knight,  merchandise  for  $250.00.     Knight  paid 

$150.00  in  cash,  balance  on  account. 
-Sold  W.  L.  Dwight,  merchandise  on  account,  $296.00. 
-Paid  N.  N.  Clegg  on  account,  $100.00. 
-Paid  bookkeeper  salary  from  the  cash  drawer,  $37.50. 

-  W.  S.  Dunn  paid  his  bill  of  Oct.  3d  by  cash,  $120.00,  and  note 

for  the  balance. 


PROBLEM   IS 

Journalize  and  post  the  following : 

Oct.  24,  1913.  —  James  Sullivan  engaged  in  the  coal  business,  investing  cash, 

$8000.00. 
Paid  rent  of  store  and  yard  for  one  month  in  advance,  $80.00. 
Oct.  25,  1913.  — Bought  of  F.  Davis,  300  tons  of  coal  at  $5.00  per  ton,  on 

account. 
Sold  J.  Sanders  for  cash  25  tons  of  coal  at  $6.25  per  ton. 
Oct.  26,  1913.  —  Bought  of  R.  Andrews  for  cash,  $5.00  per  ton,  200  tons  of  coaL 

Paid  cash  to  Philadelphia  Horse  Exchange  for  2  horses  and  a 

wagon,  $300.00. 
Paid  insurance  on  stock  for  one  year,  cash  $  25.00. 
Oct.  27,  1913.— Gave  F.  Davis  a  30-day  note  for  $1500.00  to  balance  the 

account. 
Oct.  28,  1913.  — Sold  L.  Jefferson  200  tons  of  coal  at  $6.25,  and  received  in 

payment  cash,  $250.00,  and  his  note  for  balance. 
Oct.  29,  1913.  —  Purchased  from  Stationery  Supply  Co.,  a  safe;  gave  in  pay- 
ment check  for  $  175.00. 
Sold  to  Mrs.  D.  Simpson,  2  tons  of  coal  at  $6.50  per  ton. 

Received  in  payment  money  order  for  $13.00. 
Paid  drivers'  wages  in  cash  $  24.00. 


PROBLEM   14 

1.  Make  the  following  entries  in  a  Double  Entry  Journal. 

2.  Rule  up  a  Ledger  and  open  the  different  accounts,  four  on 
a  page. 

8.    Post  from  the  Journal  to  the  Ledger. 

Oct.    1,  1913.  —  E.  D.  Fields  began  business  with  cash,  $4100.00;  real  estate, 

$5000.00;   notes  in  the  safe,  $750.00.     J.  Jones  owes 
the   business  $325.00.     Notes   outstanding   to  creditors, 
$525.00.     Merchandise  on  hand,  $2820.00. 
Sold  merchandise  for  cash,  $625.00. 
Oct.    2,  1913.  —  Bought   of  E.  P.  Price,   merchandise  on   account,   $550.00. 

Paid  freight  in  cash,  $12.00. 
Oct.    3,  1913.  —  Bought  of  John  James  for  cash,  merchandise,  $210.00. 

Bought  of  John  Jameson  account,  merchandise,  $200.00. 
Sold  M.  Frank,  merchandise  on  account,  $175.00. 
Oct    4,  1913.  —  Bought  of  S.  Wilson  for  cash,  merchandise,  $725.00. 

Sold  W.  Ayres  bill  of  merchandise,  $480.00.     Received  cash 

$200.00,  and  charged  balance  to  his  account. 
Sold  A.  W.  Macey  invoice  of  goods  on  account,  $80.00. 
Oct.    5,  1913.  —J.  Jones  paid  his  debt  of  $325.00. 

Paid  E.  P.  Price  $250.00  on  account  and  gave  him  note  for 

the  balance. 
Sold  Perry  &  Co.,  merchandise,  $300.00.     Paid  by  note. 
M.  Frank  paid  bill  of  Oct.  3d  in  cash. 
Oct.    6,  1913.  —  Bought  stationery  for  cash,  $25.00. 
Oct.    7,  1913.  —  Paid  freight  bill  in  cash,  $6.75. 

Bought  merchandise  of  E.  F.  Starr,  $600.00.     Paid  $200.00 

in  cash  and  balance  by  note. 
Sold  J.  Jones  merchandise  on  account,  $800.00. 
Oct.    8,  1913.  —  Paid  rent  for  month  in  cash,  $  150.00. 

Sold  G.  Baird,  merchandise  for  cash,  $90.00. 
Sold  M.  McKean,  merchandise  on  account,  $380.00. 
Oct.  11,  1913.  —  A.  W.  Macey  paid  bill  of  Oct.  4th  by  cash. 

Sold  F.  Wood,  merchandise  for  Cash,  $275.00. 
Oct.  12,  1913.  —  W.  Ayres  paid  balance  due  on  his  purchase  of  Oct.  4th. 
Oct.  13,  1913.  —J.  Jones  paid  $400.00  on  account  of  bill  of  the  7th. 

Paid  note  of  $300.00  due  Price,  which  matured  to-day. 
Oct  14,  1913.  —Purchased  lot  for  $  1500.00,  paying  $500.00  down,  and  balance 

by  note. 
Bought   horse  and  wagon  of  Philadelphia  Horse   Exchange, 
$300.00  on  account. 
Oct  15,  1913.  —  Perry  &  Co.  bought  merchandise  on  account,  $80.00. 


^ 


32     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


DOUBLE  ENTRY  BOOKKEEPING 


33 


I 


1 


Journalize 
Oct.    1,  1913. 


PROBLEM   16 

and  post  the  following : 
—  H.  F.  Rice  commenced  business  with : 


Oct.    2,  1913. 
Oct    3,  1913. 


Oct.    4,  1913. 


%  7400.00 

6100.00 

450.00 

275.00 

75.00 

725.00 

1735.00 


Oct    5,1913 


Oct  6,  1913 
Oct  7,  1913, 
Oct  9,1913. 
Oct  10,  1913. 


Oct.  11,  1913. 


Oct  12, 1913. 


Cash 

Real  Estate 
Notes  in  the  safe 
Debt  owed  by  J.  Kelly 
Debt  owed  by  A.  Smart 
Notes  outstanding  to  creditors 
Merchandise  on  hand 

—  Sold  merchandise  for  cash,  $540.00. 

—  Bought  of  S.  Johnson,  merchandise  for  cash,  $265.00.     Paid  • 

freight  on  above,  $8.00. 
Bought  of  A.  Wilde,  merchandise  on  account,  $340.00. 

—  Sold  James  Fish,  merchandise  on  account,  $185.00. 

Sold  F.  Munsey  bill  of  goods  amounting  to  $340.00,  receiving 
$140.00  in  cash,  and  his  SOnlay  note  for  the  balance. 

Had  front  of  building  painted  by  White,  Ledd  &  Co.  Bill 
rendered,  $75.00. 

—  Bought  of  S.  Whittle  Sons,  consignment  of  goods,  $460.00. 

Paid  by  30-day  note  for  $300.00,  balance  on  account 
Sold  to  James  Rooney,  merchandise  for  cash,  $210.00. 
J.  KeUy  paid  his  debt  of  $275.00. 

—  Sold  George  Elrich  invoice  of  goods  on  account,  $190.00. 
Paid  A.  Wilde  cash  on  account,  $  140.00,  and  note  for  balance. 

—  Paid  for  advertising  in  cash,  $80.00. 
Paid  office  salaries  in  cash,  $  78.00. 

—  James  Fish  paid  in  full  his  bill  of  the  4th. 
Paid  for  postage  and  office  supplies,  $12.00. 

—  Sold  Samuel  Woolworth  bill  of  merchandise,  $520.00,  on  which 

he  paid  cash,  $300.00 ;  balance  on  accx)unt 
Paid  bill  of  White,  Ledd  &  Co.  of  the  4th. 
A.  Smart  paid  his  bill  of  $  75.00. 

—  Bought  $1500.00  worth  of  merchandise  of  Thomas  PhilUps, 

receiving  5  %  discount  for  cash. 
Bought  stationery  for  cash,  $  25.00. 
Sold  merchandise  to  James  Gordon,  $320.00.     Received  cash, 

$200.00,  balance  on  account. 

—  Paid  taxes  by  check,  $90.00. 

Sold  Peter  Martin,  merchandise  on  account,  $235.00. 
Sold   real   estate   holdings   to    Star   Realty   Co.,    $7200.00. 
Received  cash,  $5000.00,  balance  on  account 


Oct.  13,  1913.  —  Bought  of  the  Eureka  Motor  Car  Co.  two  motorcycles  for  sales- 
men, $500.00      Paid  $100.00  down,  $200.00  in  30  days, 
balance  60  days. 
Sold  merchandise  to  Frank  Yacks  for  cash,  $425.00. 
Oct  14,  1913.  — Purchased  a  lot  for  $4000.00,  paying  $1000.00  down  and 

balance  by  note. 
McCreary  &  Co.  bought  merchandise  on  account,  $160.00. 
Oct  15,  1913.  — Paid  office  salaries,  $78.00. 


THE  TRIAL  BALANCE 


35 


I 


ll' 


CHAPTER   V 

THE   TRIAL  BALANCE 

In  posting  the  transactions  in  the  previous  chapter  the  possibility 
of  omitting  a  debit  or  credit,  or  of  substituting  a  debit  for  a  credit 
or  vice  versa,  was  very  great.  It  is  but  natural,  therefore,  that  we 
should  at  this  time  question  the  accuracy  of  the  work.  Fortunately, 
our  double  entry  system  provides  its  own  test.  Reverting  for 
the  moment  to  our  first  principle,  that  "for  every  debit  there 
must  be  an  equal  and  corresponding  credit,"  it  is  a  mathematical  cer- 
tainty, if  our  work  is  correct,  that  the  debit  and  credit  sides  of  the 
Ledger  must  balance.  In  the  Journal  every  transaction  has  equal 
debit  and  credit  sides;  hence,  since  we  have  posted  each  Journal 
debit  and  credit  to  its  respective  side  in  the  Ledger,  the  sum  of  the 
debits  of  all  the  accounts  must  equal  the  sum  of  the  credits  of  all  the 
accounts.  In  other  words,  the  sum  of  the  debit  totals  of  each  of 
the  accounts  is  equal  to  the  sum  of  the  credit  totals  of  each  of  the 
accounts.  For  instance,  the  Trial  Balance  of  the  Ledger  of  Alton 
B.  Kirk  is  as  follows: 


Trial  Balance 


Alton  B.  Kirk 


October  8,  1913 


L.F. 

1 
1 
1 
1 
2 
2 
2 
2 
3 
3 
3 


Alton  B.  Kirk,  Capital 

Store  and  Lot 

Horse  and  Wagon 

Cash 

Notes  Receivable 

H.  R.  Edlund 

James  Garvin 

D.  F.  Payne 

Merchandise 

Notes  Payable 

Expense 


Dh. 

Cb. 

ital 

675 

00 

10600 

00 

4600 

00 

, 

250 

00 

5600 

00 

2314 

00 

1750 

00 

1600 

00 

1000 

00 

500 

00 

500 

00 

600 

00 

3500 

00 

3100 
1500 

00 
00 

139 

00 

19114 

00 

19114 

00 

It  is  a  well-recognized  principle  of  algebra  that  an  equation  will 
remain  unaffected  if  an  equal  amount  is  deducted  from  both  sides. 
Applying  this  principle  to  the  above  schedule,  by  deducting,  in  each 
instance  where  there  is  a  debit  and  credit  total,  the  lesser  of  the  two 
sides  from  each  side,  it  must  follow  that  a  debit  or  credit  balance 
will  result,  the  sum  of  the  debit  balances  equaling  the  sum  of  the 
credit  balances.  To  illustrate  from  the  above  schedule,  the  Trial 
Balance  will  appear  as  follows : 


Trial  Balance 


Alton  B.  Kirk 


October  8,  1913 


L.F. 

1 
1 
1 
1 
2 
2 
2 
2 
3 
3 
3 


Alton  B.  Kirk,  Capital 

Store  and  Lot 

Horse  and  Wagon 

Cash 

Notes  Receivable 

H.  R.  Edlund 

James  Garvin 

D.  F.  Payne 

Merchandise 

Notes  Payable 

Expense 


Db. 

Cb. 

9925 

4600 

00 

250 

00 

3286 

00 

1750 

00 

600 

00 

500 

00 

100 

400 

00 

1500 

139 

00 

11525 

00 

11525 

00 


00 
00 

oo" 


Trial  Balance. — A  Trial  Balance  is  a  list  or  schedule  of  the  debit 
and  credit  footings  or  balances  of  all  the  accounts  remaining  open  in 
a  Ledger  at  any  specified  time,  together  with  the  folio  and  name  of 
the  account. 

Of  the  two  Trial  Balances  given  above,  the  better  and  by  far  the 
more  common  is  the  Trial  Balance  of  Balances.  It  exhibits  at  a 
glance  the  exact  balance  of  any  account  without  further  computation, 
and  is  equally  serviceable  in  proving  the  correctness  of  our  books. 

Preparation  of  Trial  Balance.  —  The  steps  necessary  in  the  prepa- 
ration of  a  Trial  Balance  with  reference  to  the  Ledger  are  as 
follows : 

1.  Total  in  small  pencil  footings  the  debit  and  credit  sides  of 

each  account. 

2.  Strike  the  difference  and  list  as  above. 

Correctness  of  Trial  Balance.  —  A  Trial  Balance  in  perfect  bal- 
ance does  not  indicate  absolutely  the  correctness  of  our  books,  as  an 


lii 


36     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


error  of  principle  may  have  been  made,  or  again  we  might  have 
debited  or  credited  a  wrong  account.     In  the  event  of  the  Trial 
Balance  not  balancing,  it  proves  conclusively  that  some  error  has 
been  made,  to  find  which  the  following  tests  will  be  of  assistance. 
Location  of  Errors: 

1.  Ascertain  the  difference. 

2.  If  the  difference  be  $.10, 11.00,  f  10.00,  $100.00,  or  11000.00, 

etc.,  look  for  an  error  in  addition  in  the  Trial  Balance; 
and  if  not  found,  test  the  additions  and  subtractions  of  the 
accounts  in  the  Ledger. 

3.  If  the  difference  be  divisible  by  two,  look  for  such  a  figure 

and  see  if  it  were  posted  to  the  wrong  side. 

4.  If  the  difference  be  divisible  by  9,  the  error  may  have  been 

one  of  transposition  of  figures,  as  $97.00  for  $79.00.     In 
the  event  of  these  common  tests  failing,  it  is  advisable  to 
retrace  all  the  work,  checking  every  entry. 
Value  of  Trial  Balance. — The  value  of  the  Trial  Balance  is  four- 
fold: 

1.  It  tests  the  equilibrium  of  the  Ledger. 

2.  It  assists  in  detecting  errors. 

3.  It  presents  a  schedule  and  a  balance  of  all  accounts. 

4.  It  is  the  basis  for  the  various  business  statements  and  is  a 

necessary  preliminary  to  the  closing  of  the  books. 

PROBLEM  16 
Present  Trial  Balance  of  Problem  12,  on  page  30. 

PROBLEM  17 

Present  Trial  Balance  of  Problem  13,  on  page  30. 

PROBLEM  18 
Present  Trial  Balance  of  Problem  14,  on  page  31. 

PROBLEM  19 
Present  Trial  Balance  of  Problem  15,  on  page  32. 


\ 


CHAPTER  VI 

THE  THEORY   OF  DEBIT  AND  CREDIT 

The  treatment  of  the  subject  of  debit  and  credit  in  Double 
Entry  Bookkeeping  up  to  this  time  has  been  entirely  from  a  practical 
point  of  view,  as  is  only  right  and  proper,  the  art  of  Bookkeeping 
being  one  of  the  most  practical.  However,  the  theory  of  debit  and 
credit  has  a  much  broader  application,  and  if  thoroughly  understood, 
obviates  the  necessity  of  rules. 

It  is  easy  to  say  that  we  make  a  debit  and  a  credit  entry  for  each 
transaction  which  must  balance,  but  let  us  observe  the  reason  for 
this  statement. 

Goods  =  Proprietorship 

Goods  Accounts.  —  By  "  Goods  Accounts  "  are  meant  values  of 
any  nature  either  owned  by  or  owed  by  the  proprietor  of  the 
business.     The  Goods  Accounts  are  both  positive  and  negative. 

Proprietorship  Accounts.  —  By  "  Proprietorship  Accounts  "  are 
meant  those  accounts  which  collectively  represent  the  proprietor's 
interest  in  the  business,  or,  in  other  words,  the  difference  between 
his  "  positive  "  and  "  negative  "  goods.  Thus,  if  a  proprietor  com- 
mences business,  investing  f  12,000.00  positive  value  (assets),  and 
f  2000.00  negative  value  (liabilities),  we  then  have  the  following 
equation : 

Positive  Goods  —  Negative  Goods  =  Proprietorship 
or,  in  figures : 

$12000.00      -     12000.00         =     110000.00 
or,  transposing,  we  have  : 

Positive  Goods  =  Negative  Goods  +  Proprietorship 
or,  in  figures : 

112000.00      =     12000.00        +     110000.00 

The  latter  form  of  equation,  which  groups  the  positive  values  on  the 
left  and  the  negative  values  on  the  right,  with  the  resulting  proprie- 
torship, is  the  equation  of  Double  Entry  Bookkeeping. 

37 


'M 


ill 


I 


\ 


38      A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

It  has  become  customary  to  term  the  left  side  of  the  equation 
debit,  and  the  right  side  credit.  Let  us  consider  how  the  various 
transactions  that  might  occur  affect  the  above  equation. 

First,  group  the  classes  of  transactions  as  follows: 

1.  Pure  exchange  transactions,  involving  the  exchange  of  one 

asset  for  another,  or  one  liability  for  another,  or  the  ex- 
change of  an  asset  for  a  liability,  or  vice  versa, 

2.  Transactions  involving  a  change  in  assets  or  liabilities  without 

an  exchange  (a  profit  or  loss). 

3.  Transactions  involving  both  of  the  above  classes. 

If  the  proprietor  mentioned  in  the  previous  equations  buys  a 
horse  and  wagon  for  $1000.00  without  paying  for  them,  the  balance 
remains  unchanged.     To  repeat  the  original  equation  : 

Positive  Goods  =  Negative  Goods  +  Proprietorship 

f  12000.00     =       $2000.00       +    $10000.00 

As  affected  by  the  above  purchase,  it  is : 

Positive  Goods  =  Negative  Goods  -f  Proprietorship 

$13000.00     =       $3000.00      +    $10000.00 

By  this  purchase  the  proprietor  has  not  increased  his  proprietor- 
ship, as  he  has  increased  his  positive  and  negative  goods  in  like 
amount.  On  the  same  line  of  reasoning,  if  our  proprietor  sells  the 
horse  and  wagon  for  $1000.00  in  cash,  he  simply  exchanges  equal 
amounts  of  positive  goods ;  or  if  he  exchanges  all  of  his  negative 
goods  (debts),  from  Accounts  Payable  to  Notes  Payable,  he  simply 
exchanges  equal  amounts  of  negative  goods.  In  neither  instance 
does  he  change  the  equation. 

The  purchase,  and  both  the  exchanges  of  value  mentioned,  are 
classified  as  exchange  transactions. 

If,  on  the  other  hand,  the  proprietor  receives  $200.00  in  cash 
(positive  goods)  for  having  placed  orders  for  another  firm  (in  other 
words,  a  commission)  for  which  he  has  not  parted  with  any  other 
positive  goods,  the  equation  is  changed  to : 

Positive  Goods  =  Negative  Goods  4-  Proprietorship 

$13200.00     =       $3000.00       +     $10200.00 

It  is  plain  that  the  $200.00,  coming  into  the  business  as  it  does, 
is  a  clear  gain  ;  hence,  the  increased  proprietorship. 

To  illustrate  again  with  another  transaction  of  the  same  class : 


THE  THEORY  OF  DEBIT  AND  CREDIT 


39 


The  proprietor  pays  $100.00  for  clerk  hire.  The  resulting 
equation  is : 

Positive  Goods  =  Negative  Goods  +  Proprietorship 
$13100.00     =       $3000.00       +     $10100.00 

In  this  instance  it  is  very  evident  that  the  business  has  lost 
$100.00;  hence,  the  decreased  proprietorship. 

We  see  clearly  by  this  time  that  the  positive  goods  are  the  assets 
of  a  business,  the  negative  goods,  the  liabilities,  and  the  proprietor- 
ship the  representation  of  what  the  proprietor  invests  in  the  business 
plus  his  gains  and  minus  his  losses. 

It  is  evident  that  the  theory  of  handling  the  gains  and  losses  in 
its  most  elemental  practice  simply  increases  or  decreases  the  pro- 
prietor's account.  This,  however,  is  impracticable,  as  it  defeats  the 
purpose  of  bookkeeping  in  so  far  as  it  is  not  possible  at  the  end  of 
a  period  to  trace  how  and  where  we  have  lost  or  gained.  But  the 
first  equations  expand  to  encompass  these  losses  and  gains,  so  that 
at  the  end  of  a  period  the  sources  thereof  may  be  ascertained. 

Take  the  original  illustrations  of  the  $200.00  gain  in  commis- 
sion, and  the  $100.00  loss  in  wages.  Before  considering  these  the 
equation  is : 

Assets     =  Liabilities  +  Proprietorship 
$13000.00=  $3000.00+     $10000.00 

After  receiving  the  $200.00  for  commission  it  is : 

Assets     =  Liabilities  -|-  Proprietorship 
$13200.00=  $3000.00  +     $10200.00 

which  is  the  same  as : 

Assets     =  Liabilities  -f    Gain    +  Proprietorship 
$13200.00=  $3000.00  +$200.00+     $10000.00 

After  considering  the  $100.00  paid  to  clerks  it  is : 

Assets     +    Losses  =  Liabilities  +     Gain    +  Proprietorship 
$13100.00  +  $100.00  =  $3000.00  +  $200.00  +     $10000.00 

This  clearly  illustrates  how  the  equation  maintains  the  losses  on 
the  left  side  and  the  gains  on  the  right,  until  such  time  as  it  is 
desirous  of  collecting  them  and  combining  the  result  with  the  Pro. 
prietor's  Account. 

The  full  equation  is  now  as  follows  : 

Assets  +  Losses  =  Liabilities  +  Gains  +  Proprietorship 


40     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

As  mentioned  before,  from  custom  we  have  come  to  term  the 
left  side  of  the  equation  debit,  and  the  right  side  credit,  thereby 
evolving  the  complete  formula  of  bookkeeping  without  recourse  to 
the  terms  "  debit "  and  "  credit."  From  the  above  we  can  now  reduce 
debit  and  credit  principles  to  the  statements  that : 

1.    An  Asset,  or 


Every  debit  balance  is 
Every  credit  balance  is 


2.    A  Loss 

1.  A  Liability,  or 

2.  A  Gain 


CHAPTER  VII 

THE    CHANGE   FROM    SINGLE    ENTRY   TO    DOUBLE   ENTRY 

BOOKKEEPING 

After  completing  Single  Entry  the  logical  step  apparently 
would  have  been  to  explain  the  method  of  changing  a  set  of  books 
from  Single  to  Double  Entry  Bookkeeping,  but  rather  than  take  a 
step  in  the  dark,  we  delayed  sufficiently  to  make  ourselves  acquainted 
with  the  principles  of  Double  Entry. 

As  in  Single  Entry,  a  Journal  and  Ledger  are  sufficient  for 
Double  Entry  Bookkeeping.  In  making  the  change  we  must  bear  in 
mind  that  Double  Entry  Bookkeeping  includes  Personal,  Property, 
and  Nominal  Accounts,  and  not  merely  the  Personal  Accounts  of 
Single  Entry.  Therefore  it  is  necessary  to  introduce  upon  our 
books  these  other  accounts,  but  in  order  to  incorporate  the  actual 
value  of  the  Single  Entry  business  upon  the  books,  it  is  first  necessary 
to  prepare  a  statement  of  the  assets  and  liabilities. 

We  shall  take  as  our  illustration  the  Statement  of  the  Assets  and 
Liabilities  of  the  Alton  B.  Kirk  problem  from  Chapter  III,  on  Single 
Entry  Bookkeeping,  in  which  chapter  the  collection  of  the  various 
assets  and  liabilities  was  fully  discussed. 


Statement 


Assets 


Liabilities 


Store  and  Lot 

Horse  and  Wagon 

Notes  Receivable 

Inventory  of  Mdse. 

Cash 

Acc'ts  Receivable 


4600 
250 

1750 
700 

3286 

1100 


11686 


00 
00 
00 
00 
00 
00 


00 


Notes  Payable 
Acc'ts  Payable 


Alton  B.  Kirk, 

Present  Worth 


1500 

00 

100 

00 

10086 

00 

11686 

00 

From  the  standpoint  of  bookkeeping,  it  is  necessary  to  regard 
this  change  in  our  system  as  the  commencement  of  a  new  business, 


41 


I 


I 


\l 


tt 


42     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

in  so  far  as  we  must  debit  all  of  the  assets  which  are  now  responsible 
to  the  business  for  the  value  tliey  represent,  and  credit  the  proprie- 
tor, Alton  B.  Kirk,  for  the  responsibility  he  has  granted.  Likewise 
we  debit  Alton  B.  Kirk  for  the  responsibility  of  having  the  business 
acquire  the  liabilities  granted  by  the  credit  accounts.  Notes  Payable 
and  Accounts  Payable. 
The  Journal  entry  is  : 

November  1,  1913 


Store  and  Lot 

Horse  and  Wagon 

Notes  Receivable 

Inventory  of  Merchandise 

Cash 

Accounts  Receivable 

Alton  B.  Kirk,  Capital 
Alton  B.  Kirk,  Capital 

Notes  Payable 
Accounts  Payable 
Being  the  entries  necessary  to  incorporate 
all  of  the  above  accounts  in  Alton  B. 
Kirk's  double  entry  books. 


46()0 

00 

250 

00 

1750 

00 

700 

00 

3286 

00 

1100 

00 

11686 

1600 

00 

1500 
100 

00 

00 
00 


By  means  of  this  Journal  entry  we  have  introduced  all  of  the 
values  of  the  Single  Entry  set  upon  our  books;  as  in  posting,  each  of 
these  accounts  will  be  placed  upon  our  Ledger. 

It  is  very  evident  that  the  Journal  and  Ledger  of  a  Single  Entry  set 
may  readily  be  converted  into  Double  Entry  books,  but  this  has  an 
objection  in  the  handling  of  the  Proprietor's  Account.  If  the  old  set 
is  retained,  the  Journal  entry  is  identical,  but  it  is  then  necessary  to 
make  some  exceptions  in  the  posting  thereof.  It  is  not  necessary  to 
post  the  Accounts  Receivable  or  Accounts  Payable,  they  being  al- 
ready on  the  books  ;  neither  can  we  post  the  debit  or  credit  of  the 
proprietor  to  his  account,  for  his  account  already  contains  the  present 
worth  of  the  last  period,  to  which  we  can  now  add  or  subtract  only 
the  loss  or  gain  for  the  period  just  ended.  The  balance  is  then  the 
same  as  though  the  debit  and  credit  amounts  in  the  Journal  had  been 
posted  to  a  new  Proprietor's  Account. 

It  is  preferable  in  considering  the  illustration  to  imagine  that  an 
entirely  new  set  of  books  is  opened,  in  which  case  the  whole  entry  is 


CHANGE  FROM  SINGLE  ENTRY  TO  DOUBLE  ENTRY     43 

posted,  including  the  debit  and  credit  to  the  proprietor,  Alton  B.  Kirk. 
A  new  account  then  exhibits  his  present  worth. 

As  to  the  Accounts  Receivable  and  Accounts  Payable,  it  is  a 
matter  of  discretion  whether  they  shall  be  separately  listed  in  the 
original  entry  in  the  Journal,  or  as  a  matter  of  convenience  grouped 
in  the  entry  under  the  headings  "  Accounts  Receivable  "  and  "  Ac- 
counts Payable."  In  either  event  each  and  every  debtor  and  creditor 
must  have  his  separate  account  in  the  Ledger,  whether  posted  direct 
from  the  Journal  or  copied  from  the  Single  Entry  Ledger. 

It  is  very  often  necessary  to  change  a  set  of  books  for  a  partner- 
ship, in  which  case  the  principles  involved  are  similar,  but  the  pro- 
cedure slightly  different. 

For  illustration,  let  us  again  resort  to  the  Alton  B.  Kirk  State- 
ment, but  in  this  instance  imagine  he  has  two  partners,  Adam  Burns 
and  Samuel  Crompton,  who  share  profits  and  losses  in  proportion  to 
their  investments,  which  are  as  follows  : 

Alton  B.  Kirk 
Adam  Burns 
Samuel  Crompton 

Statement 

Assets 


$5000.00 
3000.00 
2000.00 


Liabilities 


Store  and  Lot 

Horse  and  Wagon 

Notes  Receivable 

Invent,  of  Mdse. 

Cash 

Acc*ts  Receivable 


4600 
250 

1750 
700 

3286 

1100 


11686 


00 
00 
00 
00 
00 
00 


00 


Notes  Payable 
Accounts  Payable 
Present  Worth : 

A.  B.  Kirk 

A.  Burns 

Sam.  Crompton 


The  difficulty  that  immediately  arises  in  attempting  to  apportion 
the  assets  and  liabilities  among  the  several  partners  in  ratio  to  their 
ownership  is  readily  seen.  To  facilitate  this  apportionment,  recourse 
is  had  to  the  "  Capital  "  Account,  whose  only  purpose  is  the  adjust- 
ment of  the  partners'  accounts,  and  which,  after  having  served  its 
purpose,  automatically  closes  out. 


I 


44     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


November  1,  1913 


Store  and  Lot 
Horse  and  Wagon 
Notes  Receivable 
Inventory  of  Merchandise 
Cash 

Accounts  Receivable 
Capital 


Capital 


Capital 


Notes  Payable 
Accounts  Payable 


Alton  B.  Kirk 
Adam  Burns 
Samuel  Crompton 


4600 

00 

250 

00 

1750 

00 

700 

00 

3286 

00 

1100 

00 

11686 

1600 

00 

1500 
100 

10086 

00 

5043 
3025 
2017 

i     1 

00 


00 
00 


00 
80 
20 


Posting  the  above  to  the  Capital  Account : 


Capital 


1913 

Oct. 


1 
1 

1600 
10086 

00 
00 

00 

1918 

Oct. 

1 

11686 

00 


00 


To  summarize  the  discussion,  we  reduce  the  entries  to  formulas. 
1.   To  change  the  books  of  an  individual  from  Single  to  Double 
Entry  Bookkeeping,  the  following  entries  are  made : 


• 


t 


CHANGE  FROM  SINGLE  ENTRY  TO  DOUBLE  ENTRY      45 

Assets  (Debit) 

Proprietor  (Credit) 
Proprietor  (Debit) 

Liabilities  (Credit) 

2.    To  change  the  books  of  a  partnership  from  Single  to  Double 
Entry  Bookkeeping,  the  following  entries  are  made: 

Assets  (Debit) 

Capital  (Credit) 
Capital  (Debit) 

Liabilities  (Credit) 
Capital  (Debit) 

Partner  A 

Partner  B 

Partner  C 


(Credit) 


We  have  been  working  along  on  the  assumption  that  Double  Entry 
contemplates  only  the  Journal  and  the  Ledger,  but  it  goes  without 
saying  that  such  books  as  Cash  Book,  Sales  Book,  etc.,  may  also  be 
opened. 

It  is  very  often  the  case  that  after  having  changed  a  set  of  books 
to  Double  Entry,  certain  assets  and  liabilities  are  discovered,  which, 
due  to  the  incompleteness  of  Single  Entry,  were  not  disclosed  at  the 
time  of  preparing  the  Statement  of  Assets  and  Liabilities.  In  such 
an  event,  they  must  be  immediately  recorded  on  the  books.  Take, 
for  example.  Notes  Payable  for  #900.00,  not  considered  in  the  state- 
ment. 

Capital  (Debit)  $900.00 

Notes  Payable  (Credit)     $900.00 

Alton  B.  Kirk  (Debit)  $450.00 

Adam  Burns  (Debit)  270.00 

Samuel  Crompton  (Debit)       180.00 

Capital  (Credit)  900.00 

PROBLEM  20 

Change  Problem  7,  on  page  20,  from  Single  to  Double  Entry. 

PROBLEM  21 

Change  Problem  8,  on  page  20,  from  Single  to  Double  Entry. 


ik 


46    A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

PROBLEM  22 

Change  Problem  10,  on  page  21,  from  Single  to  Double  Entry. 

PROBLEM   23 

The  following  is  a  Statement  of  the  Assets  and  Liabilities  of 
R.  N.  Roberts,  who  has  been  keeping  his  books  by  Single  Entry  and 
desires  to  make  the  opening  entries  necessary  to  change  his  books 
to  a  Double  Entry  set. 

Statement 

Assets  Liabilities 


Cash 

6700 

00 

Notes  Payable 

1303 

00 

Notes  Receivable 

4200 

00 

L.  Hawton 

400 

00 

Merchandise 

1650 

00 

S.  Reiner 

600 

00 

Real  Estate 

2700 

00 

B.  Gilbert 

500 

00 

Tools 

350 

00 

J.  P.  Henri 

75 

00 

1 

H.  B.  Dawson 

125 

00 

R.  S.  Samuels 

230 

00 
00 

Present  Worth 

13227 

00 

16030 

16030 

00 

PROBLEM  24 

The  following  is  a  statement  of  R.  M.  Baker,  a  retail  tobacco 
dealer,  whose  books  have  been  kept  by  Single  Entry.  The  books 
and  records  show  the  following  facts : 


R.  M.  Baker  invested 

$  24000.00 

Cash 

3750.00 

Merchandise  on  hand 

15375.00 

Accounts  Receivable 

14950.00 

Fixtures 

2040.00 

Accounts  Payable 

3175.00 

Notes  Payable 

2970.00 

Merchandise  used  by  R.  M.  Baker 

1125.00 

Prepare  Statement  of  Profit  and  Loss,  and  make  journal  entries 
to  change  books  to  a  Double  Entry  set. 

PROBLEM  26 

E.  C.  Reeves  and  R.  Pooley,  constituting  the  firm  of  Reeves  & 
Pooley,  have  been  keeping  the  books  of  their  firm  by  a  system  of 
Single  Entry  Bookkeeping,  and  desire  to  change  them  to  the  Double 


CHANGE  FROM  SINGLE  ENTRY  TO  DOUBLE  ENTRY      47 

Entry  system.     The  partners  share  profits  and  losses  as   follows: 
E.  C.  Reeves,  70%  ;  R.  Pooley,  30%. 

The  following  is  an  abstract  of  their  affairs  to  date  : 

Assets  and  LiabiHties  as  per  Ledger  and  from  Other  Sources 


E.  C  Reeves,  Investment 

R.  Pooley,  Investment 

E.  C.  Reeves,  Withdrawals 

R.  Pooley,  Withdrawals 

Cash 

Accounts  Payable 

Accounts  Receivable 

Notes  Receivable 

Real  Estate 

Notes  Payable 

Plant 

Merchandise 


$  32690.00 

14010.00 

3500.00 

500.00 

7200.00 

9734.00 

12455.00 

2150.00 

8400.00 

3366.00 

11200.00 

22200.00 


Determine  the  amount  of  gain  or  loss  of  each  partner  at  this  date 
and  formulate  the  Journal  entries  that  are  necessary  to  convert  the 
Single  Entry  Ledger  into  a  Double  Entry  Ledger. 


' 


il 


CHAPTER  VIII 

PROMISSORY  NOTES 

From  time  to  time  we  have  digressed  from  our  general  discussion 
of  principle  to  explain  more  explicitly  the  character  of  the  accounts 
appearing  in  our  Statement  of  Assets  and  Liabilities,  having  already 
commented  on  Cash,  Merchandise,  Accounts  Receivable,  Accounts 
Payable,  etc.  The  next  items  of  importance  we  meet  are  "  Prom- 
issory Notes  "  now  familiar  to  us  as  "  Notes  Receivable  "  and  "  Notes 
Payable."  There  is  a  third  class  of  written  obligation  which  might 
appear  under  our  general  heading  "Promissory  Notes,"  namely, 
"  Accepted  Drafts,"  but  as  we  treat  of  drafts  in  a  separate  chapter 
we  shall  eliminate  them  entirely  from  our  present  discussion.  Prom- 
issory notes,  of  whatever  nature,  are  recorded  either  in  the  Notes 
Receivable  or  Notes  Payable  Accounts. 

Promissory  Note.  —  A  promissory  note  is  an  unconditional  promise 
in  writing  made  by  one  person  to  another,  signed  by  the  maker, 
engaging  to  pay  on  demand  or  at  a  fixed  or  determinable  future 
time,  a  certain  sum  in  money  to,  or  to  the  order  of,  a  specified 
person  or  to  bearer. 

A  Promissoiy  Note 


^/^OC^ 


<^^€J!i6^^^  ^^cArA4>^^^f)^J^ 


^  .^^^..^.^^y  — 


V-  f</y  y^^^^oe^ 


^- 


^-.^^ 


@^yg>»r-g  ^f/3, 


^^fify/S  V<iL// 


J^COmtCmi 


Parties  to  a  Promissory  Note.  —  There  are  always  two  original 
parties  to  a  note ;  the  one  who  makes  the  promise,  called  the  Maker 

48 


PROMISSORY  NOTES 


49 


(in  this  instance,  Alton  B.  Kirk),  and  the  one  to  whom  the  promise 
is  made,  called  the  Payee  (here,  D.  W.  Holton).  There  may  be 
subsequent  parties  to  the  note  —  third  persons  to  whom  the  promise 
is  transferred  —  called  the  Indorsees.  Something  in  addition  to  the 
delivery  or  handing  over  of  the  note  is  essential  to  a  transfer  in 
order  to  give  to  the  indorsee  the  absolute  right  and  title  to  enforce 
the  promise  against  the  maker,  viz.  an  indorsement,  or  in  other 
words,  the  signature  on  the  back  of  the  note  by  the  owner,  there- 
after known  as  the  "Indorser."  Thus,  in  the  illustration  given, 
D.  W.  Holton  desires  to  transfer  the  note  to  James  Garvin.  He 
may  do  so  by  writing  on  the  back  of  the  note : 


Pay  to  the  order  of 

James  Garvin 

(Signed)  D.  W.  Holton 


or  simply  write  his  name : 


D.  W.  Holton 


Special  Indorsement.  —  The  first,  which  is  called  a  "  Special  In- 
dorsement," specifies  the  person  to  whom  or  to  whose  order  the 
instrument  is  to  be  payable,  and  the  indorsement  of  such  indorsee 
is  necessary  to  the  further  transfer  of  the  instrument. 

Indorsement  in  Blank.  —  The  second  form  of  indorsement  is 
known  as  an  "  Indorsement  in  Blank."  It  specifies  no  indorsee,  as 
in  the  first  instance,  and  an  instrument  so  indorsed  is  payable 
to  the  holder  merely  upon  delivery.  It  is  common  practice,  how- 
ever, for  subsequent  holders  of  the  note  to  require  the  signature 
of  their  immediate  transferor  (Indorser). 

Negotiation.  —  A  promissory  note  is  said  to  be  "negotiated"  when 
it  is  transferred  from  one  person  to  another  in  such  a  manner  as  to 
constitute  the  transferee  the  holder,  with  rights  similar  to  those  held 
by  the  transferor.  If  payable  to  bearer,  it  is  negotiated  by  delivery; 
if  payable  to  order,  it  is  negotiated  by  the  indorsement  of  the  holder, 
and  completed  by  delivery. 


< 


I 

\ 


50     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Requirements  of  Negotiability. -~  A  promissory  note,  to  be  nego- 
tiable, must  conform  to  the  following  requirements: 

1.  It  must  be  in  writing  and  signed  by  the  maker. 

2.  It  must  contain  an  unconditional  promise  to  pay  a  certain  sum 

of  money.  The  amount  is  usually  written  both  in  figures 
and  in  words,  and  in  case  of  a  difference,  the  words  are 
taken  as  correct. 

3.  It  must  be  made  payable  on  demand  or  at  a  fixed  or  deter- 

minable future  time,  and  not  on  a  contingency. 

4.  It  must  contain  words  of  negotiability,   t.e.  **to  order"  or 

"bearer"  or  words  of  similar  import. 

6.  The  words  "  Without  Defalcation,"  meaning  that  the  maker 
will  not  contest  the  note  by  introducing  a  counter  claim, 
are  not  necessary,  but  are  usually  inserted. 

6.  Though  a  note  must  be  for  a  legal  consideration,  the  words 
"  Value  Received,"  though  customary,  are  likewise  unes- 
sential. 

Maturi^.  —  By  the  "  maturity  "  of  a  note  is  meant  the  day  when 
it  becomes  due. 

Purposes  of  Promissoiy  Notes.  —  Promissory  notes  are: 

1.  Received  or  given  in  lieu  of  cash  for  the  purchase  or  sale  of 

merchandise. 

2.  Received  or  given  to  balance  an  open  account. 

3.  A  means  of  acquiring  additional  capital. 
Illustrations  of  Promissory  Notes: 

(#)  Alton  B.  Kirk  purchases  from  D.  W.  Holton  11500.00 
worth  of  Merchandise  for  which  he  gives  Holton  a  30-day  note. 

Merchandise  f  1500. 00 

Notes  Payable  $;1500.00 

Merchandise  is  debited  because  it  is  responsible  for  the  liability 
created,  and  Notes  Payable  is  credited  for  having  granted  or  shifted 
its  responsibility  to  Merchandise. 

(b)  Some  time  in  the  past  H.  R.  Edlund  purchased  from  Alton 
B.  Kirk  $1000.00  worth  of  Merchandise  on  account,  at  which  time 
the  entry  was: 

H.  R.  Edlund  flOOO.OO 

Merchandise  11000.00 

Edlund's  account  was  then  debited,  having  assumed  the  responsi- 


PROMISSORY  NOTES 


51 


bility  for  that  amount  to  the  business.     Merchandise  was  credited 
for  having  shifted  the  responsibility. 

Edlund  then  gave  Kirk  a  note  in  settlement  of  his  open  account. 
The  entry  then  made  was: 


Notes  Receivable 


$1000.00 


H.  R.  Edlund 


$1000.00 


Notes  Receivable  now  assumed  the  responsibility  held  before  by 
H.  R.  Edlund;  hence  the  above  debit  and  credit. 

The  third  purpose  of  promissory  notes  involves  the  discussion 
of  Discount,  to  be  treated  separately  later.  For  the  present  it  is 
sufficient  to  say  that  in  "  discounting  paper  "  an  individual  goes  to  a 
bank  and  offers  a  promissory  note  as  a  means  of  negotiating  a  loan. 
If  the  bank  has  confidence  in  him,  it  discounts  his  note,  which  means 
that  it  pays  over  to  him  at  once  the  amount  called  for  in  the  note, 
less  the  interest,  which  is  deducted  at  the  time  of  discount  instead  of 
being  collected  in  addition  to  the  principal  at  the  time  of  payment. 

Payment  of  Promissory  Notes.  —  As  was  noted  in  the  illustration 
given  above,  the  Notes  Receivable  and  Notes  Payable  Accounts,  in 
the  manner  of  their  assuming  and  shifting  responsibility,  are  similar 
in  their  treatment  to  personal  accounts,  and  on  the  maturity  of  a 
note  —  if  it  is  a  notes  receivable  —  the  entry  is : 

Cash 

Notes  Receivable 

The  cash  having  now  assumed  the  responsibility  granted  to  it  by 
the  notes  receivable  is  debited,  and  the  notes  receivable  is  credited. 
When  a  notes  payable  is  paid,  the  entry  is : 

Notes  Payable 

Cash 

The  Notes  Payable,  being  returned  to  the  maker,  assumes  the  re- 
sponsibility of  the  departing  cash,  and  the  debit  and  credit  are  made 
accordingly. 

In  every  instance  in  the  payment  of  a  note,  the  instrument  is 
returned  to  the  owner. 

Renewals.  —  When  the  makers  of  promissory  notes  are  allowed, 
at  the  maturity  of  the  notes,  to  renew  their  promises  for  an  addi- 
tional determinate  time,  instead  of  paying  their  notes,  these  exten- 
sions are  known  as  "  Renewals."  This  involves  the  making  of  a  new 
note  and  the  making  of  the  following  entries : 


ll 


I    ' 

i 


I 


52     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

1.  Debit  the  person  renewing  the  note  and  credit  Notes  Re- 
ceivable (the  old  note). 

2.  Debit  Notes  Receivable  (the  new  note)  and  credit  the  person 
renewing  the  note. 

In  handling  promissory  notes  on  the  books,  an  important  point 
to  be  remembered  is  that  the  character  of  the  note  never  changes ; 
that  is  to  say,  once  a  notes  receivable,  always  a  notes  receivable  — 
and  the  same  is  true  in  the  case  of  a  notes  payable.  Thus,  when  a 
note  is  received  by  the  business,  it  is  debited  as  a  notes  receivable. 
From  this  it  is  seen  that  the  normal  condition  of  the  Notes  Receiv- 
able Account  is  to  show  a  debit  balance,  for  more  notes  receivable 
cannot  be  returned  by  the  business  than  were  received.  Similarly 
the  Notes  Payable  Account  usually  shows  a  credit  balance,  for  more 
notes  payable  cannot  be  returned  to  the  business  (debited)  when 
paid  than  were  issued. 

It  is  needless  to  say  that  if  all  notes  receivable  are  paid,  the 
account  balances.     This  is  also  true  of  notes  payable. 

Part  Payment.  —  There  are  occasions  when  part  payment  is  made 
on  promissory  notes,  in  which  case  such  payment  is  noted  on  the 
back  of  the  note  itself,  and  Journal  entries  made  as  follows : 

1.  In  the  case  of  a  notes  receivable : 

Cash 

Notes  Receivable 

for  the  amount  received, 
responsibility  having  been  assumed  and  shifted  to  that  degree. 

2.  In  the  case  of  a  Notes  Payable : 

Notes  Payable 

Cash 

for  the  reason  given  above. 


\ 


/ 


CHAPTER  IX 

INTEREST  AND  DISCOUNT 

It  may  safely  be  said  that  every  business  must  at  some  time  con- 
sider the  recording  of  interest  or  discount  upon  its  books.  If  the 
business  receives  or  issues  notes,  borrows  or  lends  money,  owns 
mortgages  or  has  mortgages  on  its  property,  it  necessarily  must  con- 
sider this  subject. 

Interest  is  the  compensation  allowed  for  the  use  of  money. 
Discount  is  an  allowance  made  in  consideration  of  a  debt  bein? 
paid  before  it  is  due. 

Thus,  we  see  there  is  very  little  difference  between  the  two,  both 
being  in  fact  allowances  for  the  use  of  money.  The  definition  of 
interest  gives  the  correct  impression  that  when  the  principal  sum 
of  money  which  has  been  used  is  returned,  the  compensation  for  its 
use,  interest,  is  added  thereto.  From  the  definition  of  discount  we 
see  that  discount  is  an  allowance  or  compensation  made  or  deducted 
from  the  principal  sum  of  a  debt,  provided  it  is  paid  before  it  is 
due.  Thus  It  is  but  the  compensation  allowed  for  the  use  of  money 
represented  in  the  debt,  for  the  length  of  time  between  the  date  the 
money  is  received  and  the  date  such  sum  is  due ;  but  in  discount, 
this  sum  18  deducted  at  once  from  the  amount  of  the  sum  received. 

The  distinction  is  that : 

A.  Interest  is  paid  after  the  use  of  money. 

B.  Discount  is  paid  before  the  use  of  the  money. 

Kinds  of  Discount  —  Discount  b  commonly  divided  into  three 
classes : 

1.  Commercial  discount. 

2.  Bank  discount. 

3.  Merchandise  or  trade  discount. 

The  definition  of  discount  applies  to  all  three. 
Commercial  discount  or  simple  discount  is  the  allowance  made  for 
notes  paid  in  advance. 

Bank  discount  is  the  consideration  allowed  to  a  bank  for  the  use 
pf  money. 

58 


KSSSL 


t 


52     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

1.  Debit  the  person  renewing  the  note  and  credit  Notes  Re- 
ceivable (the  old  note). 

2.  Debit  Notes  Receivable  (the  new  note)  and  credit  the  person 
renewing  the  note. 

In  handling  promissory  notes  on  the  books,  an  important  point 
to  be  remembered  is  that  the  character  of  the  note  never  changes ; 
that  is  to  say,  once  a  notes  receivable,  always  a  notes  receivable  — 
and  the  same  is  true  in  the  case  of  a  notes  payable.  Thus,  when  a 
note  is  received  by  the  business,  it  is  debited  as  a  notes  receivable. 
From  this  it  is  seen  that  the  normal  condition  of  the  Notes  Receiv- 
able Account  is  to  show  a  debit  balance,  for  more  notes  receivable 
cannot  be  returned  by  the  business  than  were  received.  Similarly 
the  Notes  Payable  Account  usually  shows  a  credit  balance,  for  more 
notes  payable  cannot  be  returned  to  the  business  (debited)  when 
paid  than  were  issued. 

It  is  needless  to  say  that  if  all  notes  receivable  are  paid,  the 
account  balances.     This  is  also  true  of  notes  payable. 

Part  Payment  —  There  are  occasions  when  part  payment  is  made 
on  promissory  notes,  in  which  case  such  payment  is  noted  on  the 
back  of  the  note  itself,  and  Journal  entries  made  as  follows : 

1.  In  the  case  of  a  notes  receivable : 

Cash 

Notes  Receivable 

for  the  amount  received, 
responsibility  having  been  assumed  and  shifted  to  that  degree. 

2.  In  the  case  of  a  Notes  Payable : 

Notes  Payable 

Cash 

for  the  reason  given  above. 


CHAPTER  IX 

INTEREST  AND  DISCOUNT 

It  may  safely  be  said  that  every  business  must  at  some  time  con- 
sider the  recording  of  interest  or  discount  upon  its  books.  If  the 
business  receives  or  issues  notes,  borrows  or  lends  money,  owns 
mortgages  or  has  mortgages  on  its  property,  it  necessarily  must  con- 
sider  this  subject. 

.    Interest  is  the  compensation  allowed  for  the  use  of  money. 

Discount  is  an  allowance  made  in  consideration  of  a  debt  bein? 
paid  before  it  is  due. 

Thus,  we  see  there  is  very  little  difference  between  the  two,  both 
being  in  fact  allowances  for  the  use  of  money.  The  definition  of 
interest  gives  the  correct  impression  that  when  the  principal  sum 
of  money  which  has  been  used  is  returned,  the  compensation  for  its 
use,  interest,  is  added  thereto.  From  the  definition  of  discount  we 
see  that  discount  is  an  allowance  or  compensation  made  or  deducted 
from  the  principal  sum  of  a  debt,  provided  it  is  paid  before  it  is 
due.  Thus  It  IS  but  the  compensation  allowed  for  the  use  of  money 
represented  in  the  debt,  for  the  length  of  time  between  the  date  the 
money  IS  received  and  the  date  such  sum  is  due;  but  in  discount, 
this  sum  IS  deducted  at  once  from  the  amount  of  the  sum  received. 

The  distinction  is  that : 

A.  Interest  is  paid  after  the  use  of  money. 

B.  Discount  is  paid  before  the  use  of  the  money. 

Kinds  of  Discount -Discount  is  commonly  divided  into  three 
classes : 

1.  Commercial  discount. 

2.  Bank  discount. 

3.  Merchandise  or  trade  discount. 

The  definition  of  discount  applies  to  all  three. 
Commercial  discount  or  simple  discount  is  the  allowance  made  for 
notes  paid  in  advance. 

Bank  discount  is  the  consideration  allowed  to  a  bank  for  the  use 
of  money. 


I-'K' 


54     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Merchandise  discount  or  trade  discount  is  a  consideration  given 
or  received  for  the  payment  of  bills  before  they  are  due.  It  is  a 
common  practice  with  some  firms  to  urge  their  customers  to  make 
prompt  payments  by  offering  the  inducement  of  a  discount  on  bills 
paid  within  a  given  time. 

Accounts  Necessary.  —  Interest,  commercial  discount,  and  bank 
discount  may  be  handled  on  the  books  in  the  one  account  "  Interest 
and  Discount,"  but  it  is  better  to  separate  them  and  have  two  dis- 
tinct accounts,  "  Interest"  and  "  Discount." 

Merchandise  or  trade  discount  may  be  carried  in  the  account 
"  Merchandise  Discount,"  but  it  is  better  to  separate  it  and  use  the 
two  accounts,  "Discounts  on  Purchases"  and  "Discounts  on  Sales." 

The  reason  for  using  two  accounts  rather  than  one,  as  in  the 
instances  above,  is  a  desire  to  prevent  certain  losses  and  gains  aris- 
ing in  the  same  class  of  accounts  cancelling  each  other,  thereby 
cancelling  the  amount  lost  and  the  amount  gained.  It  is  important 
that  such  facts  be  not  concealed,  but  that  they  be  brought  to  the 
attention  of  the  management  through  the  accounts  themselves. 

Illustrations.  —  Let  us  take  illustrations  for  interest,  discount, 
and  merchandise  discount. 

Interest : 

On  July  1st,  Alton  B.  Kirk  gives  Harry  W.  Smith  his  30-day 
note  for  $1000.00,  with  interest  at  6%.  This  note  is  in  settlement 
of  an  account.     The  Journal  entry  on  that  date  is  : 

Harry  W.  Smith  $1000.00 

Notes  Payable  $1000.00 

On  July  31st,  when  Kirk  makes  payment,  he  pays  $1005.00,  the 
amount  of  the  note  plus  the  interest.     The  entry  on  that  date  is: 

Notes  Payable  $1000.00 

Interest  ^-^^ 

Cash  $1005.00 

Interest  Account  is  debited  for  $5.00,  as  it  is  responsible  for  cash 
having  had  to  give  up  that  amount  of  its  responsibility.  Hence, 
Interest  is  a  nominal  account  in  this  case,  explaining  the  decrease  of 
an  asset,  and  is  therefore  a  loss. 

Discount : 

On  July  1st  Alton  B.  Kirk  received  the  60-day  note  of  James 
Garvin  for  $2000.00,  in  settlement  of  his  account.     The  entry  is  : 


INTEREST  AND  DISCOUNT 


55 


Notes  Receivable 

James  Garvin 


$2000.00 


$2000.00 


As  Kirk  is  in  need  of  cash  lie  immediately  takes  the  note  to  the  bank 
for  discount,  and  the  bank  gives  him  its  face  value,  less  $20.00,  6% 
discount  for  60  days.     The  following  entry  records  this  transaction: 

Cash  $1980.00 

Discount  20.00 

Notes  Receivable  $  2000. 00 

Discount,  being  responsible  for  the  $  20.00  loss,  is  debited. 

Merchandise  Discount: 

Alton  B.  Kirk  purchases  from  Samuel  Dunn,  merchandise  to 
the  value  of  $1000.00,  on  account.  Kirk  receives  a  bill  which  states 
that  it  is  due  in  30  days,  but  subject  to  2%  discount  if  paid  within 
10  days. 

As  a  purchaser  is  not  always  sure  that  he  can  take  advantage  of 
discounts,  it  is  the  practice  to  record  purchases  at  their  purchase 
price.     Hence,  Kirk  records  the  purchase  as  follows: 

Merchandise  $1000.00 

Samuel  Dunn  $1000.00 

On  July  10  Kirk  decides  to  take  advantage  of  the  discount  and 
sends  Samuel  Dunn  his  check  for  $980.00  in  payment  of  the  bill  of 
July  1,  making,  at  the  same  time,  the  following  entry: 

Samuel  Dunn  $1000.00 

Cash  $980.00 

Mdse.  Discount  or 

Discount  on  Purchases  20.00 

Merchandise  Discount,  or  Discount  on  Purchases,  is  credited,  having 
granted  responsibility  to  cash  by  saving  $20.00  for  the  business. 
Merchandise  Discount  or  Discount  on  Purchases  and  Discount  on 
Sales  are  also  nominal  accounts,  explaining  the  sources  of  certain 
losses  and  gains  to  the  business. 

Discounts. — Discounted  commercial  paper  is  known  as  "Dis- 
counts "  and  is  of  two  classes,  single-named  paper  and  double-named 
paper. 

Single-named  Paper.  —  Single-named  paper  is  a  note  on  which  one 
party  only  is  responsible,  as  in  the  case  of  a  bank  discounting  the 
note  of  a  borrower  (the  maker). 


% 


.ol 


56     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Double-named  Paper.  —  Double-named  paper  is  a  note  or  an 
accepted  draft  on  which  more  than  one  party  is  responsible. 

This  distinction  is  important,  because  while  it  is  possible  for  an 
individual  to  borrow  from  the  banks  on  his  own  note,  banks  prefer 
paper  with  more  than  one  name,  as  the  security  is  then  naturally 
greater. 

Double-named  paper  consists  of: 

1.  Notes  and  drafts  coming  into  one's  possession  from  regular 

customers. 

2.  Accommodation  paper,  on  which  either  the  maker  or  drawee 

or  the  indorser  has  placed  his  name  as  an  accommodation 
(not  for  value  received). 

Thus  "  A  "  may  give  a  note  for  $1000.00  to  "  B  "  as  an  accommoda- 
tion, so  that  "B"  can  take  the  note  to  the  bank  and  discount  it;  or 
again,  "  A  "  for  the  same  purpose  may  indorse  "  B's  "  note  made  out 
to  the  bank.  In  either  case  "  A  "  acts  for  accommodation,  having 
received  no  value,  though  to  innocent  holders  of  the  note  for  value 
he  is  responsible.  In  like  manner  we  may  have  "  A  "  accept  as  an 
accommodation  a  draft  drawn  on  him. 

The  paper  usually  preferred  by  banks  is  the  double-named  paper 
which  comes  into  the  possession  of  the  borrower  through  regular 
trade. 

To  ascertain  the  Interest  or  Discount.  —To  ascertain  the  amount 
of  interest  or  discount,  it  is  necessary  to  determine  the  number  of 
years,  months,  and  days  for  which  the  interest  is  to  be  calculated. 

In  the  case  of  interest,  the  interest  term  is  the  actual  time  the 
principal  has  been  used. 

In  the  case  of  discounts,  the  discount  term  is  the  time  between 
the  date  of  discount  and  the  date  of  maturity,  or  date  when  the 
instrument  is  due.  In  computing  interest  the  basis  in  practice 
varies  between  a  30-day  month  and  the  actual  number  of  days,  but 
in  the  case  of  "discounts"  the  actual  number  of  days  is  always 
considered. 

Methods  of  computing  Interest  and  Discount.  —Interest  and  Dis- 
count are  computed  alike  on  the  mathematical  principle : 

Principal  x  Per  cent  x  Time  =  Interest. 

P  X  R  X  T  =  Interest. 

In  computing  interest  over  a  long  time  this  formula  should  be 
followed ;  but  in  computing  interest  and  discount  for  a  shorter  time, 


INTEREST  AND  DISCOUNT 


57 


some  of  the  shorter  methods  may  be  used.    Two  of  the  most  common 
methods  in  use  follow. 

The  Sixty  Day  Method.  —  Since  60  days  are  J^  of  a  year  of  360 
days,  tlie  interest  for  60  days  is  J  of  the  interest  for  one  year.  If  the 
interest  for  one  year  is  6  %,  the  interest  for  60  days,  or  J  of  one  year, 
is  one  per  cent.  One  per  cent  of  any  principal,  therefore,  is  the  in- 
terest on  that  principal  for  60  days,  or  ^  of  one  year,  at  the  rate  of 
6  %  per  annum.     Hence  the  rule : 

To  ascertain  the  interest  on  any  principal  sum  for  60  days  at  6  %, 
point  off, two  places  from  the  right,  of  the  whole  number  of  dol- 
lars. 

If  the  time  be  more  or  less  than  60  days,  and  if  the  rate  is  not  6  %, 
this  rule  may  still  be  applied  by  proper  qualification.     To  illustrate : 

Ascertain  the  interest  on  ilOOO.OO  at  5  %  for  40  days.  By  the 
above  rule,  $10,00  is  the  interest  at  6  %  for  60  days.  For  40  days  at 
6  %  it  must  be  J^  or  §  of  $10.00,  or  $6.67.  This  figure,  then,  is  the 
interest  on  $1000  for  40  days  at  6%,  hence  the  interest  at  5%  must 
be  I  of  this  amount,  or  $5.56. 

That  is  to  say,  we  always  make  the  basis  of  our  time  60  days,  and 
reckon  the  interest  on  that  basis.  The  interest  for  80  days,  for 
instance,  would  be  the  fraction  of  |J,  or  |,  of  the  interest  at  6  %  for 
60  days.  Similarly,  whatever  the  given  rate,  we  compute  the  interest 
required  with  6%  as  a  basis.  The  interest  at  7  %,  for  example, 
would  be  J  of  the  interest  at  6  %  for  the  given  number  of  days. 

The  Ordinary  Day  Method.  —  Since  the  interest  on  any  principal 
for  one  year  at  6%  is  .06  of  that  principal,  and  since  the  interest  for 
one  day  is  ^J^  of  the  interest  for  one  year,  it  will  be  seen  that  the 
interest  for  one  day  is  the  same  as  ^^  x  the  principal.  The  fraction 
■^\\  may  be  reduced  to  -^^,  hence  the  interest  for  one  day  on  any 
principal  is  the  principal  sum  multiplied  by  .001  and  divided  by  6, 
and  the  interest  for  any  number  of  days  will  be  the  interest  for  one 
day  multiplied  by  the  number  of  days  desired.     To  illustrate : 

Suppose  it  is  required  to  find  the  interest  on  $1200.00  at  6%  for 
40  days.     The  figuring  will  be  as  follows : 

$1200.  ^ 

.001 


,  0 


V 


6)1.200 

.200=  Interest  on  $1200.00  at  6%  for  1  day. 

40 

$8,000  =  Interest  on  $1200.00  at  6%  for  40  days. 


/ 


/. 


58      A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


INTEREST  AND   DISCOUNT 


59 


I 


'I 


The  interest  at  any  other  rate  than  6  %  may  be  found  by  taking 
fractional  parts  of  6  %.  Thus,  the  interest  at  7  %  in  the  problem  just 
explained  would  be  J  of  the  interest  at  6  */{ .  The  following  rules 
may  be  applied :  — 

1.  Find  the  interest  on  the  principal  sum  for  one  day  at  6  %. 

2.  Multiply  the  interest  thus  found  by  the  number  of  days  desired. 

3.  For  any  interest  other  than  6  %,  multiply  the  result  at  6  %  by 

the  fraction  of  the  desired  rate  over  6. 

Other  methods  of  computing  interest  and  discount  are  used,  but 
since  the  two  short  methods  given  are  among  the  most  common,  they 
are  all  that  we  need  to  consider. 

Accounts  used  to  designate  Various  Kinds  of  Borrowed  Money. — 
Since  the  subject  of  interest  and  discount  has  to  do  with  the  use  and 
acquisition  of  money,  it  may  be  well  to  mention  several  methods  by 
which  men  raise  money,  and  the  accounts  used  to  designate  such 
facts  on  the  books. 

If  a  man  raises  cash  by  discounting  the  notes  of  others  in  his 
possession,  the  entry  is  a  debit  to  cash  and  discount  and  a  credit  to 
Notes  Receivable,  the  latter  offsetting  already  existing  debits.  The 
person  making  the  discount  has  no  direct  liability  in  tliis  case  to 
record  on  his  books,  although  he  is  contingently  liable  on  this  note 
till  it  is  paid;  for  in  the  event  of  the  failure  of  the  maker  to  pay  the 
bank  at  maturity,  he,  as  indorser,  is  liable  to  the  bank.  The  record 
of  such  contingent  liability  is  usually  neglected,  but  should  be  made 
by  an  entry  such  as: 

The  Maker 

Notes  Receivable  Discounted, 

and  when  such  contingent  liability  is  cancelled  by  the  maker  paying 
the  bank,  a  counter  entry  should  be  made,  as: 

Notes  Receivable  Discounted 

The  Maker 

When  an  individual  borrows  on  his  own  note  or  has  it  discounted, 
the  entry  is,  in  case  of  discounts: 

Cash 
Discount 

Notes  Payable 

Thus  Notes  Payable  Account  remains   on  the  books  to  show  the 
liability. 


If  the  proprietor  has  given  a  demand  note  to  the  bank  for  a  loan, 
termed  "  Call  Loan,"  this  fact  is  better  recorded : 


Cash 


Loan 


Loan  A  ccount  differs  from  Notes  Payable  in  that  Notes  Payable 
Account  has  a  definite  date  of  maturity,  while  Loan  Account  desig- 
nates a  liability  due  on  the  demand  of  the  bank. 

On  the  other  hand,  if  a  proprietor  raises  money  by  giving  a 
mortgage  on  his  property,  the  entry  is : 

Cash 

Mortgage  Payable 

Mortgage  Payable  shows  a  liability  secured  by  a  particular 
property  and  due  at  a  definite  future  date.  Mortgage  Payable  is 
used  to  distinguish  it  from  Mortgage  Receivable,  the  account  used 
to  denote  mortgages  owned  by  the  business. 

Again,  if  the  business  raises  money  by  giving  a  mortgage  to  a 
trustee  to  secure  the  issuance  of  bonds,  the  entry  is: 

Cash 

Bonds 

Thus,  Bond  Account  denotes  a  liability  to  the  holders  of  such 
bonds,  the  terms  of  which  are  usually  for  a  longer  period  than  the 
ordinary  mortgage. 

PROBLEM  26 

Questions  on  Notes  and  Interest  and  Discount 

A.  1.    What  is  a  promissory  note? 
2.    Name  the  parties  to  a  note. 

8.    What  is  negotiability,  and  what  words  express  it? 
4.    How  is  a  note  transferred  ?     Explain. 

B.  Journalize  the  following  transactions : 

Sold  Harris  P.  Lloyd,  merchandise  on  account,  $1000.00. 
■Received  from  Harris  P.  Lloyd  his  30-day  note  for  $1000.00  in 
settlement  of  his  purchase  of  the  1st. 

■  Indorsed  Harris  P.  Lloyd's  note  and  gave  it  to  L.  S.  Baines  to  apply 
on  account. 

■  S.  Davis  indorsed  and  gave  me  to  apply  on  his  account,  John  Magee's 
30-day  note,  dated  the  Ist,  in  his  favor,  for  $  1500.00. 


Dec. 

1. 

Dec. 

2. 

Dec. 

3. 

Dec. 

4. 

60     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Dec  5.  —  L.  Harvey  gave  me  his  check  for  an  amount  sufficient  to  pay  the 
interest  to  date  on  the  6% -$5000.00  note,  issued  six  months 
ago. 

Dec.  6.  —  Mailed  check  to  A.  P.  Williams  for  an  amount  sufficient  to  pay  the 
six  months  interest  at  6  %  on  the  $10,000.00  note  given  him 
June  6,  and  to  retluce  the  principal  $8000.00. 

Dec.  8.  —  Received  from  James  Garvin,  his  60-day  note,  dated  Dec.  6,  for 
$  2000.00,  to  apply  on  his  account. 

Dec.  9.  —  Took  James  Garvin's  note,  received  on  the  8th,  to  the  bank  and  had 
it  discounted.     Discount  rate  6  %. 

Dec.  10.  —  The  bank  returned  the  30-day  note  of  Thomas  Cook  for  $1000.00 
which  I  had  discounted  on  Nov.  28.  The  maturity  date  had 
arrived  and  Cook  failed  to  pay  the  note.  Make  Journal  entry  to 
show  that  I  have  satisfied  the  bank  for  its  claim  on  me  as  indorser 
of  the  note. 

(7.    Distinguish  between  the  accounts  "Merchandise  Discount" 

and  "Discount"  and   explain   for  what  reason   each   is 

debited  or  credited. 
2>.    How  would  you  proceed  to  find  the  terra  of  discount  on  a 

note? 
E,   Describe  the  procedure  in  finding  the  interest  on  a  note  for 

$2000.00  by  the  ordinary  day  method  in  the  following 

cases : 

a.   At  6  %  for  30  days. 

h.    At  7  %  for  70  days. 

c.    At  4  J  %  for  80  days. 


1 


4 


CHAPTER   X 

THE  SIX-COLUMN  STATEMENT 

Returning  to  the  definition  and  objects  of  bookkeeping,  we  find 
it  is  the  art,  method,  or  practice  of  recording  business  transactions 
for  the  purpose  of : 

1.  Ascertaining  the  values  in,  or  owing  to  the  business,  and  the 

values  owed  by  the  business,  as  represented  by  the  assets 
and  liabilities. 

2.  Ascertaining  the  profits  and  losses  and  the  sources  thereof. 

Up  to  this  time  in  Double  Entry  Bookkeeping  we  have  been  deal- 
ing only  with  the  recording  of  the  transactions,  which  we  have 
summarized  in  the  Trial  Balance,  —  a  condensed  view  of  the  accounts 
of  our  business.  In  the  discussion  of  the  Trial  Balance  we  learned 
that  one  of  its  chief  services  is  to  act  as  a  basis  for  the  preparation 
of  the  various  business  statements,  the  purposes  of  which  are  to 
present  the  assets  and  liabilities,  together  with  the  profits  and 
losses. 

These  statements  assume  several  forms  of  presentation,  but  at 
this  time  we  shall  consider  only  the  Six-Column  Statement,  which 
is  shown  on  the  following  page. 

Explanation  of  Six-Column  Statement  —  It  will  be  noted,  as  the 
name  implies,  that  the  Statement  is  provided  with  six  columns  for 
figures.  The  first  two  columns  are  a  reproduction  of  the  Trial 
Balance,  with  the  exception  of  the  separate  personal  accounts  which 
have  been  grouped  under  the  headings  "  Accounts  Receivable  "  and 
"  Accounts  Payable."  It  is  the  figures  of  the  first  two  columns  that 
we  extend  into  the  remaining  four  columns,  the  first  two  of  which 
represent  the  losses  and  profits,  and  the  last  two  the  assets  and 
liabilities. 

In  addition  to  the  facts  given  in  the  Trial  Balance,  it  is  necessary 
to  consider  certain  supplementary  figures  to  be  obtained  outside  of 
the  books,  and  indicated  in  the  Statement  to  be  marked  in  red  ink 
figures. 

61 


62     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Six-Column  Statement 


Alton  B.  Kirk 


October  8,  1913 


Alton  B.  Kirk, 

Capital 
Store  and  Lot 
Horse  and  Wagon 
Cash 

Notes  Receivable 
Acc'ts  Receivable 
Merchandise 
Expense 
Notes  Payable 
Accounts  Payable 

Net  Gain* 


Alton  B.  Kirk, 
Net  Credit 

Alton  B.  Kirk, 
Net  Gain 

Alton  B.  Kirk, 
Present  Worth 


Dk. 


4600 

250 

3286 

1750 

1100 

400 

139 


11525 


00 
00 
00 
00 
00 
00 
00 


00 


*In  red  ink. 


Cr. 


9925 


00 


1500 
100 


11525 


9925 
161 


00 
00 
00 


00 
00 


L068 


139 


139 
161 


00 


00 

00* 


300  00 


Profit 


300 


300 


00 


00 


300  00 


ASSKTS 


4600 
250 
3286 
1750 
1100 
700 


11686 


00 
00 
00 
00 
00 
00* 


00 


11686 


00 


LlABIL- 
ITIR8 


1500  00 
100  00 


1600  00 


10086  00 


11686  00 


I  * 

♦ 
i 

t 


'I 


THE  SIX-COLUMN  STATEMENT 


63 


Let  us  consider  each  extension  in  the  illustration  separately. 
To  do  this  intelligently,  the  distinction  between  Nominal  Accounts 
(profit  and  loss)  and  Financial  Accounts  (assets  and  liabilities)  must 
be  kept  in  mind. 

1.  Alton  B.  Kirk's  account  is  not  extended,  since  it  is  neither 
a  loss,  profit,  asset,  or  liability.  This  account  may  be  considered  a 
liability,  as  it  represents  an  obligation  of  the  business  to  its  pro- 
prietor; but  in  a  statement  of  this  sort  we  regard  only  liabilities 
to  third  parties. 

2..  Store  and  Lot,  representing  value  in  the  business,  is  an  asset, 
and  is  extended  to  the  asset  column. 

3.  Horse  and  Wagon  (Illustration  2). 

4.  Cash  ] 

5.  Notes  Receivable    ^'"^'^^"^  ^^  Illustrations  2  and  3. 

6.  Accounts  Receivable,  representing  the  sum  of  the  debts  owed 
to  the  business,  is  an  asset ;  hence  it  is  extended  to  the  asset  column. 

7.  The  Merchandise  Account  is  peculiar  in  that  it  combines  the 
characteristics  of  both  a  Financial  and  Nominal  Account.  The 
f  400.00  in  the  debit  column  represents  a  debit  balance  or  excess  of 
debits  over  credits  in  this  account  in  the  Ledger.  By  debits  to  Mer- 
chandise we  record  purchases  ;  and  by  credits,  sales.  This  1400.00 
debit  balance  represents  the  excess  value  paid  for  the  goods  over 
the  value  received  from  the  sales.  Without  considering  any  other 
element  it  appears  that  we  have  suffered  a  loss  of  this  amount,  but 
this  is  true  only  on  the  presumption  that  we  have  sold  our  entire 
stock  of  goods.  It  is  therefore  necessary  to  ascertain  the  value  of 
the  goods  on  hand  (take  an  inventory  at  cost  price),  which  amount 
is  found  to  be  $700.00;  and  since  it  is  value  in  the  business,  it  is 
treated  as  an  asset.  By  the  presumption  above,  there  is  a  loss  of 
1400.00  due  to  our  considering  that  there  is  no  stock  on  hand  ;  but 
since  the  inventory  reveals  H  700.00  worth  of  stock  on  hand,  it  fol- 
lows that  there  is  in  reality  a  gain  of  1300.00.  Recording  the  above 
facts  on  the  Statement,  the  $700.00  inventory  is  extended  in  the 
asset  column  in  red  ink,  as  it  is  a  supplementary  fact,  obtained  aside 
from  the  books;  and  the  $300.00  gain  is  extended  in  the  profit 
column. 

Another  explanation  of  the  above  is :  Mr.  A.  purchases  during 
a  period  12000.00  worth  of  merchandise,  and  his  sales  register 
9 1600.00.     The  Ledger  entries  are  as  follows : 


Ijl 


H 


64     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Merchandise 


2000 


00 


1600 


00 


If  Mr.  A.  has  sold  all  his  stock,  there  is  a  loss  of  $400.00.  On 
the  other  hand,  if  he  has  an  inventory  of  $700.00  taken  at  cost  price, 
then  he  has  sold  $1300.00  worth  of  his  goods,  or  the  #2000.00  worth 
purchased,  less  the  $700.00  worth  on  hand.  The  $1300.00  worth  of 
Merchandise  has  been  sold  for  $1600.00;  hence  there  is  a  gain  of 
$300.00. 

8.  Expense  is  a  Nominal  Account,  and  is  therefore  either  a  loss 
or  a  gain  ;  but  as  it  appears  as  a  debit  in  our  Trial  Balance  it  neces- 
sarily follows  from  our  theory  of  debit  and  credit  that  it  is  a  loss, 
and  is  extended  to  the  loss  column. 

9.  Notes  Payable,  which  represents  value  owed  by  the  business, 
is  extended  to  the  liability  column. 

10.  Accounts  Payable,  which  represents  the  sum  of  the  creditors' 
accounts,  is  placed  in  the  liability  column. 

Having  made  the  extensions,  we  now  complete  the  Statement. 
First,  we  total  all  the  columns.  The  first  two,  "dr."  and  "CR.," 
balance,  being  a  repetition  of  our  Trial  Balance.  The  difference 
between  the  totals  of  the  loss  and  gain  column  is  necessarily  the  net 
loss  or  gain,  and  is  indicated  in  red  ink  to  make  it  more  conspicuous. 
The  treatment  of  these  two  columns  in  the  illustration  explains  the 
principle  of  bookkeeping,  that  we  never  subtract  the  lesser  from 
the  greater  side  to  find  the  difference,  but  add  to  the  lesser  side  the 
difference  to  make  it  equal  the  greater.  This  same  principle  is 
adhered  to  in  balancing  the  accounts  in  the  Ledger. 

The  results  in  the  Statement  may  be  tested  by  means  of  a  valu- 
able check,  provided  within  the  Statement  itself.  After  finding  the 
net  gain,  the  proprietor's  net  credit,  which  represents  the  proprie- 
tor's present  worth  at  the  end  of  the  last  period,  plus  or  minus  any 
withdrawals  or  additional  investments  of  capital,  is  inserted  in  the 
lower  left  side  of  the  Statement.  In  this  case  Alton  B.  Kirk's  past 
present  worth  was  his  original  investment  of  $10,000.00,  which, 
minus  a  withdrawal  of  $75.00,  leaves  a  net  credit  of  $9925.00.  To 
this  net  credit  amount  there  has  been  added  the  gain  of  $161.00, 
and  the  result  is  the  proprietor's  present  worth.  Reduced  to  a 
formula  it  is : 


k 


THE  SIX-COLUMN  STATEMENT  65 

Net  Credit  -h  Net  Gain  (or  -  Net  Loss)  =  Present  Worth 
In  several  earlier  instances,  we  proved  that : 

Assets  —  Liabilities  =  Present  Worth 

or 
Assets  =  Liabilities  -h  Present  Worth 

So  the  amount  resulting  from  the  addition  of  the  net  credit, 
$9925.00,  and  the  net  gain,  $161.00,  must  be  the  amount  which 
when  added  to  the  liabilities  makes  that  column  equal  the  asset 
column.  Referring  then  to  our  Statement,  we  see  that  the  sum  of 
the  net  credit  and  net  gain  is  extended  directly  under  the  liability 
column,  where  it  causes  the  last  two  columns,  assets  and  liabilities, 
to  balance.  We  have  now  checked  our  present  worth  and  proved 
the  Statement  correct,  in  so  far  as  it  is  possible.  Even  though  the 
Statement  checks,  we  cannot  be  absolutely  sure  that  some  error  of 
principle  has  not  been  made,  or  that  the  amounts  of  the  supplemen- 
tary facts  are  correct,  for  accuracy  depends  upon  careful  work. 

Value  of  Six-Column  Statement.  —  The  chief  value  of  the  Six- 
Column  Statement  is  not  as  an  instrument  of  service  in  business 
practice,  but  rather  as  a  teaching  force  in  distinguishing  between 
Financial  and  Nominal  Accounts.  It  is  upon  the  principles  exhib- 
ited in  the  Six-Column  Statement  that  the  practical  Statements  sub- 
sequently to  be  considered  are  based. 

PROBLEM  27 

From  the  following  Trial  Balance  of  W.  N.  Smith,  prepare  a  Six- 
Column  Statement. 

Trial  Balance 


W.  N.  Smith,  Capital 

50000 

00 

Cash 

10050 

00 

Land 

15000 

00 

Buildings 

10000 

00 

Accounts  Receivable 

7650 

00 

Accounts  Payable 

9750 

00 

Notes  Receivable 

8700 

00 

Notes  Payable 

1750 

00 

Machiq^ry 

7500 

00 

Rent^^j) 

1400 

00 

Merchsndise 

4000 

00 

62900 

00 

62900 

00 

The  inventory  of  merchandise  on  hand  is  $1750.00. 


66     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

PROBLEM  28 

From  the  following  Trial  Balance  of  B.  N.  Fullar,  prepare  a  Six- 
Column  Statement. 

Trial  Balance 


1 

B.  N.  Fullar,  Capital 

2 

Cash 

3 

Land 

4 

Buildings 

5 

Notes  Receivahle 

6 

Notes  Payable 

7 

Accounts  Receivable 

8 

Accounts  Payable 

9 

Merchandise 

10 

Commission 

11 

Rent 

12 

Machinery 

40000 

6050 

00 

5000 

00 

16000 

00 

7600 

00 

650 

6500 

00 

8600 

8000 

00 

100 

00 

2000 

2000 

00 

51250 

00 

51250 

00 


00 
00 

00 


00 


The  inventory  of  merchandise  is  $3504.22. 

PROBLEM  29 

From  the  following  Trial  Balance  of  W.  W.  Lake,  prepare  a  Six- 
Column  Statement. 

Trial  Balance 

W.  W.  Lake  December  31,  1913 


'I 


W.  W.  Lake,  Capital 

49500 

00 

Cash 

9225 

37 

Land    : 

12000 

00 

Expense 

4287 

50 

Interest 

60 

75 

Rent 

3000 

00 

Buildings  ? 

10000 

00 

Commission 

3500 

00 

Merchandise ' 

6000 

00 

Accounts  Receivable 

14200 

00 

Notes  Receivable 

7450 

75 

Accounts  Payable 

8761 

47 

Notes  Payable 

7462 

90 

Machinery 

3000 

00 

69224 

37 

69224 

37 

The  inventory  of  merchandise,  Dec.  31, 1913,  is  $12,565.23. 


CHAPTER   XI 

CLOSING  A  SET  OF  BOOKS 

The  Statement  which  was  discussed  in  the  last  chapter  is  one 
that  can  be  taken  at  any  time  at  the  request  of  the  proprietor,  with- 
out involving  the  necessity  of  making  any  entries  in  the  books  them- 
selves. However,  it  is  the  policy  of  the  modern  mercantile  estab- 
lishment to  record  and  summarize  upon  its  books  at  least  once  a 
year,  and  usually  not  more  than  twice  a  year,  the  facts  as  expressed 
in  a  comprehensive  Statement  for  the  entire  period.  This  procedure 
is  termed  "Closing  the  Books." 

The  reason  for  so  doing  is  to  reduce  the  Nominal  (Profit  and 
Loss)  Accounts  to  a  net  result  in  the  "  Profit  and  Loss  "  Account, 
80  that  the  net  balance  therein  revealed  may  be  taken  to  and  in- 
cluded in  the  Proprietor's  Account,  thus  revealing  at  the  end  of  any 
fiscal  period  the  present  worth  of  the  proprietor  in  his  own  account. 
This  results  in  the  Nominal  Accounts  on  the  books  being  closed,  thus 
permitting  them  to  start  afresh  in  the  new  period ;  and  this  process 
being  repeated  from  period  to  period  furnishes  a  basis  for  valuable 
comparison. 

Procedure  in  Closing  a  Set  of  Books.  —  There  are  several  distinct 
steps  which  are  necessary  in  the  closing  of  the  books,  and  these  are 
as  follows  : 

1.  Take  a  Trial  Balance. 

2.  Collect  supplementary  facts,  such  as  merchandise  inventory, 

etc. 

3.  Introduce  the  supplementary  facts  upon  the  books  by  means 

of  Journal  entries. 

4.  Close  the  Nominal  Accounts  by  Journal  entry  into  the  Profit 

and  Loss  Account. 

5.  Close  the  balance  of  Profit  and  Loss  by  Journal  entry  into 

the  Proprietor's  Account. 

6.  Rule  and  bring  down  the  balance  of  the  Financial  Accounts. 

7.  Take  a  new  Trial  Balance. 


AT 


I 


I 

i 

t 

I 
1 


I 


68     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

The  following  is  a  Trial  Balance  of  the  books  we  are  to  close : 

Trial  Balance 


Proprietor 

50000 

00 

Cash 

15000 

00 

Notes  Receivable 

20000 

00 

Notes  Payable 

10000 

00 

Expense 

1000 

00 

Commission 

400 

00 

T.  Smith 

5000 

00 

J.  King 

6000 

00 

L.  Schwartz 

4080 

00 

H.  B.  Denny 

450 

00 

S.  P.  Clothier 

550 

00 

Merchandise 

1380 

00 

Real  Estate 

9000 

00 

Interest 

160 

00 

Taxes 

100 

00 
00 

61560 

61560 

(M) 

The  only  supplementary  fact  in  this  problem  is  the  inventory  of 
merchandise  of  f  2000,  for  which  the  entry  is  as  follows : 

Inventory  12000.00 

Merchandise  $  2000. 00 

Inventory  has  been  debited  because  it  is  responsible  for  Ji  2000. 00 
granted  to  it  by  the  Merchandise  Account. 

Profit  and  Loss  Account.  —  The  next  step  is  to  select  the  nominal 
accounts  whose  balances  are  to  be  transferred  by  means  of  Journal 
entries  to  the  Profit  and  Loss  Account.  This  is  a  temporary,  col- 
lective account  gathering  within  itself  the  balances  of  all  nominal 
accounts  that  it  may  produce  the  resultant  net  loss  or  gain,  which 
can  be  tranferred  in  one  amount  to  the  Proprietor's  Account. 

Profit  and  Loss  $1000.00 

Ex[)ense 
Loss  due  to  Expense 
Commission  400.00 

Profit  and  Loss 
Gain  due  to  Commission 
Merchandise  620.00 

Profit  and  Loss 
Gain  due  to  Merchandise 


$1000.00 


400.00 


620.00 


CLOSING  A  SET  OF  BOOKS 


69 


Note.  —  This  entry  is  made  after  having  posted  the  inventory  entry  to  Merchandise, 
as  the  profit  or  loss  of  this  account  cannot  be  obtained  without  first  having  introduced 
the  inventory. 

Interest  i  160.00 

Profit  and  Loss  $160.00 

Q-ain  due  to  Interest 

Profit  and  Loss  ^    100.00 

Taxes  '  100.00 

Loss  due  to  Taxes 

All  the  entries  necessary  to  close  our  Nominal  Accounts  into 
Profit  and  Loss  have  now  been  made,  and  when  posted,  leave  that 
account  with  a  credit  balance  of  $80.00.  Since  the  Profit  and  Loss 
Account  is  but  a  collection  of  the  balances  of  the  various  Nominal 
Accounts,  it  is  in  itself  a  Nominal  Account ;  and  a  credit  balance  must 
necessarily  be  the  net  gain  for  the  entire  business.  This  gain  of 
$80.00  directly  affects  the  Proprietor's  Account,  in  that  it  increases 
his  interest  in  the  business  to  that  extent ;  hence,  this  amount  must 
be  shown  in  his  account.  This  is  accomplished  by  the  following 
Journal  entry : 

Profit  and  Loss  $80.00 

Proprietor  $80.00 

Transfer  of  Net  Q-ain 
to  the  Proprietor'' s  Account 

All  the  accounts  in  the  Ledger  have  now  been  closed,  with  the 
exception  of  the  Proprietor's  Account  and  the  Financial  Accounts. 
These  must  remain  open,  as  each  Financial  Account  is  representative 
of  so  much  value,  either  in  or  owed  to  or  by  the  business ;  and  the 
Proprietor's  Account  is  the  concrete  expression  of  the  ownership  of 
these  assets  and  liabilities. 

While  these  accounts  cannot  be  closed,  it  is  advantageous  to  rule 
and  balance  them,  in  order  to  commence  the  new  period  with  but 
one  debit  or  credit  amount  as  a  balance  in  each  of  these  accounts. 

Proprietor 


1918* 

Oct. 

« 
14 

Present  Worth* 

50080 

00 

1913 

Oct. 

1 

J 

1 

50000 

00 

00 

Oct. 

14 
14 

Present  Worth 

11 

80 

00 

50080 

50080 

00 

50080 

00 

1              1 

♦In  red  ink 

70     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Expense 


1918 

Oct 

1 
2 
3 
4 

J 

1 
1 
2 
3 

100 
300 
350 
250 

00 
00 
00 
00 

00 

00 

1918 

Oct. 

14 

J 

11 

1000 

00 

KHN) 
1000 

1000 

00 

1918 

Oct 


14 


Commission 


1918 

Oct 

1 

2 
14 

J 

1 

1 
11 

100 
150 
400 

00 
00 
00 

00 

1918 

Oct. 

3 

J 

2 

650 

00 

650 

650 

00 

1 

Merchandise  Inventoiy 


11 

2000 

00 

Cash 


1918 

Oct. 

1 

J 

1 

12000 

00 

1913 

Oct 

4 

J 

3 

16000 

00 

2 

1 

6000 

00 

5 

4 

7000 

00 

4 

3 

20000 

00 

6 

4 

6000 

00 

5 

4 

6500 

00 

6 

5 

4000 

00 

6 
14 

Balance 

4 

3500 

00 

00 

00 

Oct. 

14* 

Balance  * 

88000 

15000 

00 

48000 

48000 

00* 

48000 

00 

Oct 

15000 

00 

*In  red  ink. 


CLOSING  A  SET  OF  BOOKS 


Notes  Receivable 


71 


1918 

Oct 

5 

6 

14 

J 

Balance 

4 
4 

30000 
20000 

00 
00 

00 

00 

1918 

Oct. 
Oct. 

13 
14* 

J 

Balance  * 

12 

30000 
20000 

00 
00* 

50000 

50000 

50000 

00 

Oct. 

20000 

00 

*  In  red  ink. 


Interest 


1918 

Oct 

10 
12 

14 

J 

6 
6 

11 

50 
100 

150 

160 

00 
00 

00 

00 
00 

1913 

Oct. 

11 

J 

6 

310 

00 

310 

310 

00 

• 

Taxes 


1918 

Oct 


14 


11 


100 


00 


72     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Merchandise 


1913 

1918 

Oct. 

1 

J 

1 

9120 

00 

Oct. 

3 

J 

2 

14200 

00 

1 

1 

176o0 

00 

4 

4 

8060 

00 

2 

1 

18350 

00 

4 

4 

2040 

00 

3 

2 

1500 

00 

5 

6 

760 

00 

4 

5 

2500 

441 2<) 

00 

IK) 

14 

10 

17680 

427400 

00 

00 

14 

11 

620 

00 
00 

14 

11 

2000 
44740 

00 

44740 

00 

Notes  Payable 


-f 


1913 

Oct. 
Oct. 


10 

« 
14 


J 


Balance* 


1918 

6 

4000 

00 

Oct. 

3 

10000 

00 
00 

3 
4 

14 

14000 

Oct. 

• 

Balance 


♦  In  red  ink. 


L.  Schwartz 


ii 


1 

2 
2 

4000 

6000 
4000 

14000 

14000 

10000 

♦  In  red  ink. 


00 

00 
00 


00 

oo" 


1913 

1913 

Oct. 

6 

J 

4 

4000 

00 

Oct. 

7 

J 

5 

7080 

00 

7 

5 

80 

00 

10 

6 

2020 

00 

7 

6 

3000 

00 

9100 

00 

8 

6 

2020 

00 

9 
10 

6 
6 

2080 
2000 

00 
00 

00 

Oct. 

14 

Balance  ♦ 

4080 

00 

131^» 

14 

Balance 

13180 

00 
00 

13180 

00 

Oct. 

4080 

CLOSING  A  SET  OF  BOOKS 


Profit  and  Loss 


73 


1913 

1913 

Oct. 

14 

J 

11 

1000 

00 

Oct. 

14 

J 

11 

400 

00 

14 

11 

100 

00 

14 

11 

620 

00 

14 

11 

80 

00 

14 

11 

160 

00 

1180 

00 

1180 

00 

A  glance  at  Cash,  Notes  Payable,  L.  Schwartz,  Notes  Receivable, 
or  the  Proprietor's  Account,  will  illustrate  the  method  of  balancing 
a  Financial  Account.  It  will  be  noted  that  the  debit  or  credit  differ- 
ence in  any  of  these  accounts  has  been  placed  on  the  lesser  side  in- 
dicated to  be  marked  in  red  ink,  to  show  clearly  that  this  amount  is 
an  insert  and  not  an  entry  through  the  Journal.  Each  red  ink 
amount  has  been  brought  down  below  the  final  rulings  on  the  oppo- 
site side  of  the  account  in  black  ink,  as  a  red  ink  figure  simply 
denotes  the  excess  of  the  other  side.  This  principle  of  balancing 
accounts  may  be  used  at  any  time,  whenever  an  account  becomes 
unwieldy  by  virtue  of  an  excessive  number  of  debits  or  credits ;  and 
in  order  to  preserve  the  balance  of  the  Ledger  the  red  ink  amount 
must  always  be  brought  down  on  the  other  side. 

While  we  closed  the  Merchandise  Account  and  left  the  Inventory 
Account  with  a  debit  balance  of  $2000.00,  representing  the  goods 
on  hand,  it  is  customary,  after  closing  the  accounts  and  ascertaining 
the  present  worth  of  the  proprietor,  to  transfer  this  debit  balance  of 
Inventory  to  the  Merchandise  Account.  As  this  is  now  the  begin- 
ning of  a  new  period,  the  amount  of  goods  on  hand,  in  its  relation 
to  the  Merchandise  Account,  stands  as  a  new  purchase.    The  entry 


is: 


Merchandise 


$2000.00 


Inventory 


$2000.00 


The  posting  of  this  entry  closes  the  Inventory  Account. 

What  is  known  as  a  proof  Trial  Balance  is  now  taken  from  the 
Ledger.  It  is,  in  fact,  a  Statement  of  Assets  and  Liabilities,  as 
the  nominal  accounts  have  all  been  closed.  This  same  Statement 
will  subsequently  be  termed  a  Balance  Sheet,  but  at  this  time  it  is 
used  merely  to  test  the  balance  of  the  Ledger  after  closing. 


fi 


74     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Proof  Trial  Balance 


Cash 

Notes  Receivable 

Merchandise 

Real  Estate 

L.  Schwartz 

T.  Smith 

J.  King 


15000 
20000 
2000 
9000 
4080 
5000 
6000 


61080 


00 
00 
00 
00 
00 
00 
00 


00 


Notes  Payable 
H.  B.  Denny 
S.  P.  Clothier 


10000 
450 
650 


00 
00 
00 


Proprietor 


50080 


61080 


00 


00 


Note.  —  When  this  Statement  is  used  as  a  Balance  Sheet,  it  is  customary  to  group 
the  personal  accounts  under  the  headings  *' Accounts  Receivable"  and  ** Accounts 
Payable/' 

In  making  closing  entries  it  is  not  necessary  to  make  a  separate 
entry  for  each  Loss  and  Gain  Account,  as  all  the  losses  may  be  com- 
bined in  one  entry,  and  similarly,  all  the  gains  combined  in  one 
entry.     Thus,  a  proper  entry  is : 


and  Loss                          $2000.00 

Rent 

3^500.00 

Commission 

400.00 

Interest 

100.00 

Expense 

1000.00 

Closing  of  the  losses  into 

Profit  and  Loss  Account 

ment 


PROBLEM  30 

From  the  following  Trial  Balance  prepare  a  Six-Column  State- 
also  Journal  entries  necessary  to  close  this  set  of  books. 


CLOSING  A  SET  OF  BOOKS 


75 


Trial  Balance 

Db. 

Cb. 

1 

Proprietor 

50000 

00 

2 

Cash 

10500 

00 

3 

Merchandise 

8640 

22 
00 

4 

Land 

7000 

5 

Buildings 

15000 

00 

6 

Accounts  Receivable 

7030 

24 

7 

Accounts  Payable 

3850 

69 

8 

Notes  Receivable 

703 

00 

9 

Notes  Payable 

2942 

00 

10 

Machinery 

6000 

00 

11 

Tools 

1000 

00 

12 

Commission 

132 

00 

13 

Interest 

43 

02 

! 

14 

Expense 

744 

21 

•' 

56792 

69 

56792 

69 

jf 

PROBLEM  31 

From  the  following  Trial  Balance  prepare  a  Six-Column  State- 
ment, at  the  same  time  making  the  Journal  entries  necessary  to  close 
the  books. 

Trial  Balance 


W.  S.  Jamison,  Capital 

60000 

00 

W.  S.  Jamison,  Personal 

2000 

00 

% 

Cash 

Real  Estate 

Furniture  and  Fixtures 

Expense 

12750 

20000 

3250 

9500 

25 
00 
00 
75 

Interest 

137 

50  t 

Rent 

1100 

00 

Storage 

600 

50 

Commission 

2600 

00 

Notes  Receivable 

1500 

00 

Accounts  Receivable 

19540 

84 

Notes  Payable 

7500 

34 

Accounts  Payable 

19762 

16 

Merchandise 

5683 

66 

Machinery 

15000 

00 

90463 

00 

90463 

00 

Merchandise  inventory,  at  end  of  year,  112,640.34. 


» 

1 


'I 


u 


I 
n 

f  i 

li 


1 


76     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

PROBLEM  32 

From  the  following  Trial  Balance,  present  the  Six-Column  State- 
ment, making  at  the  same  time  the  Journal  entries  necessary  to  close 
the  books. 

Trial  Balance 


CLOSING  A  SET  OF  BOOKS 


Cash 

4200 

00 

1 

Accounts  Receivable 

9700 

00 

Accounts  Payable 

6000 

00 

Notes  Receivable 

1200 

00 

Notes  Payable 

5419 

00 

Merchandise 

4700 

00 

Rent 

3000 

00 

Interest 

250 

00 

Commissions 

3750 

00 

Real  Estate 

15000 

00 

Furniture  and  Fixtures 

2500 

00 

Machinery 

8200 

00 

Discount 

17 

00 

Expense 

402 

00 

Harris,  Investment 

15000 

00 

Goldsmith,  Investment 

00 

20000 

00 

49669 

49669 

00 

Merchandise  inventory,  $3350.00. 

PROBLEM   33 

You  are  required  to  keep  the  following  set  of  books  for 
J.  M.  Harris,  who  is  starting  in  the  retail  coal  business;  to  give 
Mr.  Harris  a  Statement  at  the  end  of  the  two-week  period  in  the 
form  of  a  Six-Column  Statement ;  and  to  close  the  books. 

Jan.    1,  1913. — J.  M.  Harris  invests  cash  in  the  retail  coal  business,  $12000.00. 
Jan.    2,  1913.  —  Paid  one   month's   rent   for  coal  yard,  in  advance,  $200.00. 

Purchase  for  cash,  pea  coal,  $5000.00. 
Jan.    3,  1913. — Purchase  two  horses  and  wagons  (Horse  &  Wagon  Account)  for 

delivery  service,  paying  for  them  in  cash,  $800.00. 
Jan.    4,  1913. — Purchase    from    Phoenix    Coal    Co.,    on    account,    nut    coal, 

$5000.00. 
Jan.    5,  1913.— Sell  Globe  Mfg.  Co.,  on  account,  coal,  $  750.00. 
Jan.    6,  1913. — Give  Phoenix   Coal   Co.  30-day  note  to  settle  account.     Pay 

drivers  and  bookkeeper,  $50.00. 


77 


Jan.    8,  1913.— Sell  Keystone  Supply  Co.   $2000.00  worth  of  coal.     Receive 

30-day  note  in  payment. 
Discount  above  note  at  the  bank.     Discount  rate  is  6  %. 
Jan.    9,  1913.— Mail  to  L.  Harwood  check  for  $20.00,  as  commission  for  sell- 
ing coal  to  Keystone  Supply  Co. 
Jan.  10,  1913.— Sell  Randall  &  Co.  $4000.00  worth  of  coal.     Receive  ctmh 

$1000.00,   and    30-day   note    for   $2000.00,    balance   on 
account. 
Jan.  11,  1913.  —  Pay  for  repairs  to  one  of  the  wagons,  $25.00. 
Jan.  12,  1913.— Buy  from  Phoenix  Coal  Co.,  on  account,  $2000.00  worth  of 

coal. 
Buy  from  Stationery  Supply  Co.,  on  account,  new  books  and 
stationery,  $75.00. 
Jan.  13,  1913.  — Sell  J.  R.  Wood  Co.,  on  account,  $1200.00  worth  of  coal. 

In  response  to  a  request,  the  business  takes  up  its  note  given 

to  Phoenix  Coal  Co.,  on  Jan.  6,  less  $  18.75  for  discount. 
Pay  weekly  wages  of  drivers  and  bookkeeper  $50.00. 

Note.  —The  horses  and  wagons  are  estimated  to  be  worth  .^ 50.00  less  than  cost, 
and  the  Expense  Account  shows  an  inventory  of  $  100.00,  due  to  two  weeks'  unexpu-ed 
rent.    Merchandise  inventory  is  14250.00. 


CHAPTER  XII 

THE  CASH  BOOK 

Thus  far  in  making  original  entries  we  have  used  only  the 
Journal,  in  which  book  we  have  recorded  transactions  involving : 

1.  Receipts  and  expenditures  of  cash. 

2.  The  purchase  and  sale  of  merchandise,  or  other  commodities. 

3.  Promissory  notes. 

4.  Expenses  of  the  business. 
6.   Adjustment  of  accounts. 
6.    Closing  entries. 

Inadequacy  of  the  Journal.  —  The  ability  of  the  Journal  to  cope 
with  all  these  transactions  is  commensurate  with  the  volume  of  the 
business.  There  comes  a  time  when  the  increase  in  business  makes 
it  a  physical  impossibility  for  one  man  to  record  in  one  book  all  of 
these  transactions. 

Other  Books  Required.  —  It  was  found  that  the  ordinary  business 
transactions  could  be  classified  under  the  above  six  headings ; 
further,  that  there  were  sufficient  transactions  under  headings  1,  2, 
and  3  to  warrant  the  use  of  separate  books  for  their  entry.  The 
books  resulting  from  this  classification  came  to  be  known  as  : 

xl.  The  Cash  Book. 

2.  The  Sales  Book. 

3.  The  Purchase  Book. 

4.  The  Bill  Book. 

The  Cash  Book.  —  The  handling  of  cash  involves  its  receipt  and 
expenditure  ;  and  after  removing  the  cash  transactions  from  the 
general  Journal,  we  may  go  a  step  further  and  divide  our  Cash 
Book  so  as  to  provide  on  the  left  page  for  receipts,  and  on  the  right 
page  for  payments.  This  segregation  of  cash  receipts  and  cash  pay- 
ments is  permissible,  since  all  cash  receipts  are  debits  and  all  cash 
payments,  credits.  So  much  for  the  cash  itself,  but  it  must  be 
understood  that  each  page  is  a  Cash  Journal  complete  in  itself,  since 
each  page  applies  the  principles  of  debit  and  credit. 

Take  for  example  the  Cash  Book  shown  on  pages  80  and  81. 

78 


THE  CASH  BOOK 


79 


It  will  be  noted  that  the  various  debits  (receipts)  have  been 
listed  on  the  left  page  of  the  Cash  Book  and  the  credits  (payments) 
on  the  right  page  in  columns  provided  for  that  purpose.  At  the 
same  time,  in  the  Account  Column  on  the  left  page  appear  the  several 
accounts  which  have  shifted  their  responsibility  to  Cash  as  it  came 
into  the  business ;  hence  each  of  these  several  accounts  is  a  credit, 
the  debit  for  which  is  always  Cash.  On  the  right  page  in  the  Ac- 
count Column  appear  the  accounts  which  have  been  responsible  for 
cash  going  out  of  the  business;  hence  each  of  these  accounts  is  a 
debit,  the  credit  for  which  is  always  Cash.  Thus,  every  entry  in 
this  book  comprises  in  itself  a  debit  and  a  credit. 

Summary  of  Cash  Book  Principles.  —  The  above  principles  may  be 
summarized  as  follows: 

1.  To  place  an  amount  in  the  debit  column  automatically  debits 

cash. 

2.  To  place  the  name  of  an  account  on  the  left  side  of  this  book 

in  itself  credits  that  account. 

3.  To  place    an  amount    in   the   credit   column   automatically 

credits  cash. 

4.  To  place  the  name  of  an  account  on  the  right  side  of  this 

book  in  itself  debits  that  account. 

Explanation  of  the  Cash  Book  Entries : 

On  Jan.  1,  Alton  B.  Kirk  invests  $5000.00  in  the  business; 
hence  Cash  is  debited  and  Alton  B.  Kirk  credited. 

On  Jan.  1,  $  100.00  is  paid  for  rent  of  store  for  one  month;  hence 
Expense  is  debited  and  Cash  is  credited. 

On  Jan.  2,  *  100.00  worth  of  Merchandise  is  sold  to  D.  W. 
Hoi  ton  for  cash;  hence  Cash  is  debited  and  Merchandise  is  credited. 

On  Jan.  4,  James  Garvin  pays  his  bill  of  the  2d  inst.  for 
f  400.00;  hence  Cash  is  debited  and  James  Garvin  credited. 

On  Jan.  6,  P.  D.  Dolan's  bill  of  the  Ist  for  i  200.00  is  paid; 
hence  P.  D.  Dolan  is  debited  and  Cash  is  credited. 

On  Jan.  6,  Alton  B.  Kirk  discounts  his  60-day  note  for  f  600.00 
at  his  bank;  receiving  in  cash  $594.00,  this  amount  being  the  face 
of  the  note  less  the  discount.  If  we  had  no  Cash  Book  the  entry 
for  this  transaction  would  be: 


Cash 
Discount 


$594.00 
6.00 


Notes  Payable      $600.00 


t 


80     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Cash  Book 

Cash  Debits 


1918 

JaD. 


Datk 


Jan. 


1 
2 
4 

5 

6 

8 

10 

11 


12 
12 
15 
16 


L.F. 


AccorwT 


Alton  B.  Kirk 
Merchandise 
James  Garvin 
Notes  Payable 
Notes  Receivable 
Merchandise 
Discount 
Mdse.  Discount 
Cash  Debit 

Balance 
Merchandise 
James  Garvin 
Merchandise 
Cash  Debit 


Explanation 


Investment 
To  D.  W.  Holton 
Paid  bill  of  1st 
Discounted  our  note 
C.  B.  Lyons'  note 
To  H.  C.  Clarke 
On  note  to  Smith 
M.  A.  Ellis'  bill 


To  D.  W.  Holton 
Paid  bill  of  10th 
To  C.  B.  Lyons 


Debit 


5000 
100 
400 
600 
700 
300 
2 

2 


100 
200 
400 


00 
00 
00 
00 
00 
00 
00 
00 


00 
00 
00 


J104 
7104 


4108 


700 


00 


00 


00 


00 


THE  CASH  BOOK 

Cash  Book 
Cash  Credits 


81 


i 


I 


Datk 


1913 

Jan. 


1 
2 
5 
6 
8 
10 
11 


L.F 


AOCOITNT 


Explanation 


Cekmt 


Expense 
Merchandise 
Discount 
P.  D.  Dolan 
M.  A.  Ellis 
Notes  Payable 
M.  A.  Ellis 
Cash  Credit 
Balance  * 


*  In  red  ink 


Rent,  one  month 
From  H.  Bliss 
On  our  note 
Paid  our  bill  of  1st 
Paid  our  bill  of  2d 
To  N.  Smith 
Bill  of  3d 


100 
2200 
6 
200 
190 
200 
100 


00 
00 
00 
00 
00 
00 
00 


2996 
4108 
7104 


00 

00* 

00 


i 


82     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

This  is  the  entry  which  must  be  made  through  the  Cash  Book ;  but 
we  cannot  debit  cash  and  credit  notes  payable  in  the  Cash  Book  for 
1594.00,  as  this  would  be  a  violation  of  the  rule  that  promissory 
notes  must  be  recorded  at  their  face  value.  Therefore,  to  keep 
within  our  principles,  and  at  the  same  time  make  a  true  entry  in  the 
Cash  Book,  we  record  the  receipt  of  $  600.00  from  notes  payable  on 
the  debit  side  and  credit  the  payment  of  $6.00  for  discount  on  the 
credit  side,  thereby  showing  the  net  result  of  $594.00,  the  cash 
actually  received. 

Posting.  —  The  procedure  to  be  followed  in  closing  the  Cash 
Book  is  to  credit  in  the  Ledger  each  individual  account  appearing 
on  the  debit  side;  and  the  offsetting  debits,  instead  of  being  posted 
in  detail  to  the  cash  account,  are  posted  in  total,  designated  in  the 
illustration  as  "cash  debit."  The  folio  column  is  used  similarly  to 
that  of  the  Journal. 

On  the  credit  side  of  the  books  the  procedure  is  to  debit  in  the 
Ledger  each  individual  account;  and  the  offsetting  credits  to  cash 
are  posted  to  the  Cash  Account  in  the  Ledger  in  total,  designated  in 
the  illustration  as  "  Cash  Credit." 

The  balancing  of  the  Cash  Book,  which  may  be  done  as  occasion 
requires,  is  similar  to  the  balancing  of  an  account  in  the  Ledger. 
Care  should  be  taken,  however,  in  bringing  the  balance  down  to  the 
opposite  side,  as  it  must  be  placed  in  the  second  money  column  so 
that  it  will  not  be  again  posted  to  the  Ledger.  By  posting  our  total 
debits  and  credits  of  the  Cash  Book  to  the  Ledger  account  "  Cash," 
it  now  reveals  the  same  balance  as  the  Cash  Book;  and  future 
postings  to  the  Cash  Account  in  the  Ledger  must  be  only  for  new 
receipts  and  payments. 

Advantages  of  the  Cash  Book.  —  The  advantages  of  the  Cash  Book 
are  as  follows: 

1.  Relieves  the  general  Journal. 

2.  Facilitates  the  original  entries  for  cash. 

3.  Readily  reveals  a  balance  when  wanted  without  the  necessity 

of  posting. 

4.  Facilitates  posting  in  that  but  one  debit  and  one  credit  to 

cash  need  be  posted. 


CHAPTER  XIII 
THE  SALES  BOOK 

The  Sales  Book.  —  The  necessity  of  relieving  the  Journal  of  its 
volume  of  entries  was  explained  in  the  last  chapter,  which  introduced 
the  Cash  Book.  The  next  relief  found  to  be  necessary  was  the  sepa- 
ration from  the  Journal  of  all  transactions  involving  the  sale  of 
Merchandise.  These  in  turn  have  been  placed  in  a  separate  book, 
the  Sales  Book,  a  page  of  which  follows : 

Sales  Book  « 

July  1,  1913 


Hemphill  &  Collins,  net  30  days 

100  bu.  Potatoes  @  $  .60 

50  cr.  Peaches  2.00 

25  cr.  Plums  2.25 

2 

Hays  &  Miller,  2/10 ;  net  30  days 

20  bu.  Onions  @  $  .50 

*"  40  bu.  Potatoes  .62 

6  cr.  Peaches  2.25 

3 

H.  B.  Bains,  2/10;  net  30  days 

10  bx.  Oranges  @  ^4.00 

10  bx.  Lemons  3.00 

25  cr.  Peaches  2.00 

10  cr.  Plums  2.05 


Hopwood  &  Co.,  net  30  days 

250  bu.  Potatoes  @  f  .55 

40  bu.  Onions  .48 
Cash 

60  bu.  Potatoes  @  $  .65 

10  bu.  Onions  .50 

2  cr.  Peaches  2.50 

2  cr.  Plums  2.75 

1  bx.  Oranges  4.50 

2  bx.  lemons  3.50 
Merchandise  Credit ' 


83 


60 

00 

100 

00 

56 

25 

10 

00 

24 

80 

11 

25 

40 

00 

30 

00 

50 

00 

21 

50 

140 

25 

19 

20 

39 

00 

5 

00 

5 

00 

5 

50 

4 

50 

7 

1 

00 

216 


46 


141 


25 


05 


50 


159 


66 


629 


45 


00 


25 


\\  1 

1  f 


84      A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Explanation.  —  Heretofore  in  the  Journal  every  sale  of  merchan- 
dise has  been  recorded  as  a  credit  to  the  Merchandise  Account;  and 
it  is  tliis  fact  which  permits  the  grouping  of  merchandise  sales  in 
one  book,  when,  by  recording  the  amount  of  the  sale  in  the  money 
column,  we  register  a  credit  to  the  Merchandise  Account,  the  debit 
for  which  is  the  customer. 

It  will  be  noted  that  after  each  customer's  name  the  terms  of  the 
sale  are  given.  For  instance,  in  the  sale  on  July  2  to  Hays  &  Miller 
the  terms  are  2/10,  net  30  days,  meaning  that  if  the  bill  is  paid 
within  ten  days  2%  discount  will  be  allowed;  otherwise  the  bill  will 
be  due  for  the  full  amount  at  the  end  of  thirty  days.  Such  terms 
are  a  matter  of  agreement  between  customer  and  seller. 

Another  common  practice  is  to  place  the  address  of  the  purchaser 
on  the  line  below  his  name.  This  is  done  only  in  cases  where  the 
customer  is  new  to  the  firm,  or  where  his  address  is  outside  of  the  city. 

The  first  four  sales  need  no  further  explanation,  as  they  are 
simply  a  listing  of  the  goods  sold,  with  a  detail  of  prices,  the  names 
of  the  purchasers,  and  the  terms  of  sale. 

The  fifth  transaction,  a  sale  for  cash,  is  somewhat  different  in  its 
nature.  It  represents  the  sale  of  merchandise  for  cash  to  one  or 
several  persons  on  that  day;  and  being  a  cash  transaction,  ordinarily 
appears  only  in  the  Cash  Book.  However,  it  is  the  purpose  of  the 
Sales  Book  to  reveal  at  any  time  the  volume  of  the  sales,  so  it  is 
necessary  that  cash  sales  appear  in  the  Sales  Book  as  well  as  in  the 
Cash  Book.  The  Cash  debit,  however,  is  posted  only  from  the  Cash 
Book,  and  the  Merchandise  credit  from  the  Sales  Book.  To  do  this 
we  list  the  cash  sales  in  the  Sales  Book,  thereby  automatically 
crediting  Merchandise;  and  the  name  of  the  account  to  be  debited. 
Cash,  is  checked,  so  that  it  will  not  be  posted  from  the  Sales  Book. 
The  $66.00  is  now  entered  on  the  debit  side  of  the  Cash  Book,  being 
the  amount  of  cash  received  from  cash  sales,  thereby  automatically 
debiting  Cash;  and  the  account  seemingly  to  be  credited  from  the 
Cash  Book,  Merchandise,  is  checked  (^)  so  that  it  will  not  be 
posted.     Thus: 

Cash  Debit 


July 


Merchandise 


Cash  Sales 


66 


00 


THE  SALES  BOOK 


85 


Another  method  often  advanced  for  the  handling  of  such  sales  is 
to  debit  in  the  Sales  Book  each  customer  making  a  cash  purchase, 
and  then  immediately  to  debit  Cash  in  the  Cash  Book  and  credit  the 
individual  customer's  account.  This  is  good  procedure  if  our  cash 
sales  are  made  to  customers  who  ordinarily  purchased  on  account, 
so  as  to  show  in  their  accounts  the  volume  of  business  with  them; 
but  as  such  is  seldom  the  case,  and  as  it  is  against  practice  to  open 
useless  accounts  in  the  Ledger,  this  method  may  be  discarded. 

The  customary  method  of  handling  these  cash  sales  is  to  keep  a 
record  of  them  in  a  supplementary  book  termed  "  Cash  Sales  Book," 
entering  each  cash  sale  as  it  is  made,  and  then  at  the  end  of  the  day 
transferring  the  totals  of  this  book  to  our  Sales  Book,  and  entering 
the  total  cash  receipts  from  such  sales  in  the  Cash  Book. 

This  illustration  of  cash  sales  has  been  taken  from  the  standpoint 
of  a  retailer.  If  our  illustration  were  the  books  of  a  wholesaler,  we 
might  find  no  use  for  a  "  Cash  Sales  Book,"  as  "  cash  sales  "  in  a 
large  business  often  means  ^ve  to  ten  days  for  payment.  Accord- 
ingly, even  for  this  short  period,  the  sale  is  on  account,  and  is 
charged  to  the  account  of  the  purchaser. 

Posting  of  the  Sales  Book.  —  From  the  Sales  Book  every  customer 
is  debited  in  his  account  in  the  Ledger  for  the  amount  opposite  his 
name,  the  corresponding  credit  being  made  to  the  Merchandise 
Account  in  the  Ledger  for  the  total  sales,  as  expressed  in  the  illus- 
tration, "merchandise  credit." 

As  the  Sales  Book  continues  from  page  to  page,  each  page  is 
totaled,  and  opposite  the  total  is  written  "  Forward,"  this  amount 
being  taken  to  the  top  of  the  next  page,  where  it  is  expressed 
"  Brought  forward,"  so  that  at  any  time,  without  difficulty,  we  can 
ascertain  the  amount  of  sales  to  be  posted  to  the  Merchandise 
Account  in  the  Ledger,  as  a  credit. 

Return  of  Goods  Sold.  —  When  an  entire  sale,  or  part  of  a  sale 
of  merchandise  is  returned  because  of  a  difference  in  price,  or 
through  failure  of  the  goods  to  meet  the  standard  desired,  an  entry 
is  made  debiting  Merchandise,  which  again  takes  on  responsibility, 
and  crediting  the  original  purchaser  with  the  amount  returned. 
This  being  an  adjustment,  the  entry  is  made  in  the  Journal. 

Allowances  on  Sales.  —  When  an  allowance  is  made  to  a  customer 
on  some  particular  sale,  an  entry  is  made  inthe  Journal  debiting 
"Allowance"  Account  and  crediting  the  customer.  Allowance 
Account  in  this  case  represents  the  amount  of  credit  given  a  cu^^ 


r 


f 


86     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

tomer  because  of  some  inferiority  in  the  goods,  or  for  other  causes, 
and  is  debited  because  it  is  responsible  for  the  value  which  was 
credited  to  the  customer's  account.  This  is  a  Nominal  Account, 
whose  balance  is  a  loss. 

Advantages  of  the  Sales  Book.  —The  advantages  of  the  Sales  Book 
are  as  follows: 

1.  Relieves  the  general  Journal. 

2.  Facilitates  the  recording  of  Sales  transactions. 

3.  Readily  reveals  the  volume  of  sales. 

4.  Facilitates  posting,  in  that  only  one  credit  to  Merchandise 
need  be  posted.  ^ 


CHAPTER  XIV 

THE  PURCHASE  BOOK 

The  Purchase  Book.  — Just  as  the  merchandise  sales  were  taken 
from  the  general  Journal  and  grouped  in  the  Sales  Book,  so  may  all 
merchandise  purchases  be  removed  and  grouped  in  a  separate  book, 
the  Purchase  Book. 

As  each  purchase  of  merchandise  necessarily  causes  that  account 
to  assume  responsibility,  the  Purchase  Book  is  nothing  more  than  a 
Purchase  Journal  for  the  recording  of  Merchandise  debits  for  all 
purchases. 

The  following  is  a  page  of  a  Purchase  Book: 

Purchase  Book 
July  1,  1913 


L 


Hartley  &  Meade  2/10,  net  60  days 

201  Produce  Ave.,  N.  Y. 

200  bu.  Potatoes  @ 

180  bu.  Onions 


.45 
.40 


Williams  &  Walker,  net  10  days 

300  cr.  Peaches  @  $  1.75 

150  cr.  Plums  1.85 

50  bx.  Oranges  4.00 

40  bx.  Lemons  3.00 


E.  S.  Winthrop,  30  days 

100  bu.  Potatoes  @ 

50  bu.  Onions 
Merchandise  Debit 


.46 
.40 


90 
72 

525 
277 
200 
120 


46 
20 


00 
00 

00 
50 
00 
00 


00 
00 


162 


00 


1122 


66 


1350 


50 


«■* 


00 


50 


87 


\i 


f 


88     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Explanation.  —  The  names  of  the  various  creditors,  the  terras  of 
the  purchase,  the  address,  if  it  is  not  already  well  known,  and  the 
details  of  the  purchase  and  price  have  all  been  lislt  I  in  the  Purchase 
Book,  similar  to  the  listing  of  sales  in  the  Sales  Book. 

If  cash  purchases  are  made,  the  procedure  is  based  on  the  same 
principle  as  provided  for  the  handling  of  cash  sales.  If  sufficient 
cash  purchases  are  made,  a  separate  and  supplementary  '*  Cash  Pur- 
chase Book"  is  used;  but  cash  purchases  by  retailers  from  large 
wholesale  houses  are  uncommon  from  the  standpoint  of  an  actual 
payment  upon  delivery  of  the  goods.  A  very  common  use  of  the 
term  "  Cash  "  in  such  cases  means  payment  within  five  or  ten  days, 
so  that  even  during  this  short  period  the  purchase  has  really  been 
on  account;  and  an  entry  is  made  in  regular  form  in  the  Purchase 
Book,  crediting  the  firm  from  whom  the  purchase  is  made. 

Invoice  Book. — Another  method  of  procedure  followed  in  the 
handling  of  a  Purchase  Book  is  to  make  no  written  entry  on  the 
purchase  of  goods,  but  on  the  arrival  of  the  bill  for  the  goods  it  is 
pasted  in  a  book  used  for  that  purpose,  and  becomes  the  original 
record  from  which  the  debit  and  credit  are  posted.  Such  a  book 
is  better  termed  an  "Invoice  Book."  This  system  has  its  advan- 
tages in  that : 

1.  It  saves  the  labor  and  time  of  writing  the  entry  in  a  Purchase 

Book. 

2.  The  bills  may  be  allowed  to  accumulate  for  a  week  or  longer, 

and  then  all  the  bills  of  each  creditor  may  be  pasted  in  to- 
gether, causing  only  one  credit  to  each  creditor's  account. 
These  several  benefits  are  offset   by  the  following   disadvan- 
tages : 

1.  There  is  no  entry  until  the  original  bill  is  received. 

2.  There  is  a  possibility  of  a  bill  being  lost  before  it  is  pasted 

in  the  book. 

3.  In  the  event  of  the  above  there  is  no  record  of  the  purchase ; 

and  on  the  receipt  of  a  duplicate   bill  there  may  be   a 
doubt  as  to  the  receipt  of  the  goods. 

4.  All  bills  received  are  not  of  the  same  size  ;  hence  it  is  awk- 

ward to  paste  them  together. 
6.    The  original  bill  when  paid  cannot  be  receipted. 
The  first  method  as  illustrated  is  better  and  safer. 
Posting  of  the  Purchase  Book.  —  The  name   of  every  creditor 
appearing  in  the  Purchase  Book  is  credited  in  its  respective  account 


THE  PURCHASE  BOOK 


89 


I 


i: 


in  the  Ledger  for  the  amount  opposite  the  name ;  and  the  corre- 
sponding debit  is  made  to  the  Merchandise  Account  in  the  Ledger 
for  the  total  purchases,  as  expressed  in  the  illustration  "Merchan- 
dise Debit." 

Goods  Rejected.  —  When  an  entry  is  made  in  the  Purchase  Book 
and  subsequently  all  or  a  part  of  the  purchase  is  rejected  because  of 
its  being  of  inferior  quality,  etc.,  an  entry  is  made  in  the  Journal, 
debiting  the  creditor  from  whom  the  goods  were  bought,  and  credit- 
ing Merchandise,  as  Merchandise  is  no  longer  responsible  for  this 
amount.  This  being  an  adjustment,  the  entry  is  made  in  the 
Journal. 

Allowances  Received.  —  When  an  allowance  from  the  purchase 
price  of  a  particular  purchase  of  merchandise  is  received,  an  entry 
is  made  in  the  Journal  debiting  the  creditor's  account  and  crediting 
"  Allowance  Received  "  Account. 

Value  of  the  Purchase  Book.  —  The  value  of  the  Purchase  Book 
lies  in  that  it : 

1.  Relieves  the  general  Journal. 

2.  Facilitates  the  recording  of  merchandise  purchases. 

3.  Readily  reveals  the  volume  of  purchases. 

4.  Facilitates  posting  in  that  but  one  debit  to  Merchandise  need 

be  posted. 


THE  BILL  BOOK 


91 


CHAPTER  XV 


THE   BILL   BOOK 


The  Bill  Book.  —  Unlike  the  Cash  Book,  Sales  Book,  and  Pur- 
chase Book,  the  Bill  Book,  which  by  its  construction  permits  of  its 
use  as  a  book  of  original  entry,  is  more  commonly  used  as  an  auxiliary 
book,  and  as  such  merely  furnishes  a  description  in  full  of  all  notes 
and  accepted  drafts  handled  by  the  business.  Its  use  as  an  aux- 
iliary book  requires  that  the  entries  for  all  notes  and  accepted  drafts 
be  made  in  the  Journal  on  their  issuance  or  receipt,  and  in  the  Cash 
Book  upon  their  payment. 

We  shall  here  follow  the  general  practice  of  using  it  as  an  aux- 
iliary book.     An  illustration  is  shown  on  pages  91  and  92. 

The  note  or  accepted  draft  itself  furnishes  the  basis  for  the  de- 
scription provided  for  in  the  various  columns.  The  uses  for  the 
columns  are  shown  in  entering  the  following  note  which  was  received 
on  Aug.  15  from  James  Garvin,  in  settlement  of  his  account. 

A  Promissoiy  Note 


^ji2mi 


(^/(^^€iit^<^(^X<^.  Cy^/Z^  j4/^gi3 


eZniy, 


rc^^cu/ 


<^^ 


4^Z^{/ 


ii^^t^ 


L^^xg<? 


C2^c-^^c^^ty  ^^ ' 


•  CCbi*r.J 


The  following  indorsement  is  on  the  back  of  the  note : 


Pay  to  the  order  of 

Alton  B.  Kirk 

(Signed)  James  Garvin 

90 


H 

< 


00 

H 

H 
O 


L 


h 
0 

as 
0 

P 

I 
m 

% 

a 

Discounted 

at  Farmers' 

Nat'l  Bk. 

1 

^ 

< 

II 

XKaoKy 

i 

•Jb. 

> 

H     ■ 

at 

\ 

H 

•ooai 

•ao^I 

•1s>Ol 

ld9g| 

1  2 

•anvl 

Xinpl 

autif  1 

•advl 

•J«K| 

•qajil 

•a«f| 

^ 

q5 

i 

3 

\  1 

< 

CO 

S2 

— —^ _____ , 

1 

4j 

Indorsrb 

OR 

Drawer 

s 

8| 

«p8 

03 

ja 

< 

• 

0 

0 

92     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


iM 


•J 

n 

< 

< 

h. 

o 

—1 

§ 

5 
2 

l| 

xkhory 

UEl. 

, — ^ _ 

>• 
H 

•M 

M 
b    • 

h 
O 

H     . 

H 

•< 

•AON 

Idas 

1 

•irny 
Xinf 

9unj' 

A»K  II 

•adv  II 

•■"Wll 

1 

1 

o| 

• 

1 

00 

u 

O 
JZ5 

5? 

H 
•< 

M        u 

•      r 

K  PS  $ 

2  o  •< 

*!       Q 

■ 

g 

Makbb 

OR 

Dbawbb 

•<  > 
Co 

1 

THE  BILL  BOOK 


The  following  is  the  explanation  of  the  various  columns : 


93 


Column    1.  The  number  of  the  note,  210. 

2.  The  date  received,  Aug.  15. 

3.  The  maker,  S.  H.  Beitzel. 

4.  The  payee,  James  Garvin. 

5.  The  indorser,  James  Garvin. 

6.  Received  in  settlement  of  account. 

7.  Payable  at  the  Commercial  Exchange  Bank. 

8.  Date  of  making  (a)  1913 

(6)  Aug. 
(<?)  14th. 

9.  Time  to  run,  30  days. 

10.  Date  of  Maturity,  Sept.  13. 

11.  Ledger  folio  used  only  when  an  original  book. 

12.  Amount  column,  for  the  face  of  the  note,  ^  1000.00. 

The  entry  in  our  Journal  is : 

Notes  Receivable  f  1000.00 

James  Garvin         $1000.00 
Received  in  settlement  of  account.  ^* 

On  Aug.  24  Alton  B.  Kirk  has  this  note  discounted  at  the 
Farmers'  National  Bank,  receiving  i  996. 67. 

Under  the  part  of  the  Bill  Book  designated  "  Disposition  of,"  we 
first  put  i  996. 67  in  the  proceeds  column,  this  being  the  amount  re- 
ceived from  the  bank.  The  next  column  gives  us  the  date  when 
discounted  or  paid,  in  this  case  Aug.  24,  and  the  final  column 
(remarks)  shows  the  manner  in  which  the  instrument  is  disposed  of. 

The  Cash  Book  entry  is  made  on  the  debit  side.  Cash  being 
debited  and  Notes  Receivable  being  credited  for  $1000.00;  on  the 
credit  side  crediting  Cash  and  debiting  Discount  for  $3.33. 

Had  the  instrument  we  have  just  entered  in  the  Bill  Book  been 
an  accepted  draft,  the  same  columns  would  have  been  used,  due  to 
their  double  capacity.  The  maker  of  a  note  and  the  drawee  of  a 
draft  bear  the  same  relationship  to  the  holder.  The  payee  of  a  note 
and  the  payee  of  a  draft  are  likewise  of  similar  character,  and  finally 
the  indorser  of  a  note  or  a  draft  and  the  drawer  of  a  draft  may  be 
treated  alike  by  the  holder. 

The  handling  of  the  Notes  Payable  Book  is  identical  with  that 
of  the  Notes  Receivable  Book,  and  needs  no  further  explanation. 


■■itiMtiM" 


mm 


94     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Value  of  the  Bill  Book.  —  The  Bill  Book  is  of  value  in  that  it 
enables  the  bookkeeper : 

1.  To  keep  a  detailed  record  of  every  note  and  accepted  draft 

without  further  reference  to  the  instrument  itself. 

2.  To  ascertain  the  amounts  and  maturity  dates  of  notes. 

3.  To  have  a  record  for  future  reference. 


CHAPTER  XVI 


DRAFTS 

Distinction  between  Bills  of  Exchange  and  Drafts.  —  At  the  outset 
it  is  important  to  distinguish  between  Drafts  and  Bills  of  Exchange, 
terms  which  are  commonly  used  synonymously.  The  "Negotiable 
Instrument  Act"  of  Pennsylvania  defines  a  Bill  of  Exchange  as 
"  an  unconditional  order  in  writing,  addressed  by  one  person  to  an- 
other, signed  by  the  person  giving  it,  requiring  the  person  to  whom 
it  is  addressed  to  pay  on  demand  or  at  a  fixed  or  determinable  future 
time,  a  certain  sum  in  money  to  order  or  bearer."  A  draft,  on  the 
other  hand,  is  more  comprehensive,  including  as  it  does  Bills  of  Ex- 
change and  also  a  great  variety  of  non-negotiable  orders  to  pay 
money.  For  instance,  orders  to  transfer  funds  from  one  department 
to  another  and  ordinary  bank  checks  are  drafts,  but  not  Bills  of 
Exchange.  The  term  "  draft "  in  the  United  States  is  applied  to  in- 
struments payable  in  the  United  States,  and  Bills  of  Exchange  to 
those  payable  in  foreign  countries.  We  shall  adhere  to  the  common 
usage. 

A  Draft 


^^/eca 


^ 


fu^ar^^^ 


fe^^^ 


^^fTCC^ 


Parties.  —  The  parties  to  a  draft  are : 

1.  The  Drawer. 

2.  The  Drawee. 

3.  The  Payee. 

95 


96     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Definition  of  Parties 

1.  The  Drawer  is  the  person  or  firm  who  draws  or  makes  the 

draft.     (Paul  Jones.) 

2.  The  Payee  is  the  person  or  firm  to  whom  the  draft  or  order 

is  made  payable.     (Theodore  Roberts.) 

3.  The  Drawee  is  the  person  or  firm  to  whom  the  order  to  pay 

is  addressed.     (Francis  Sheridan.) 
Purposes  of  Drafts.  —  Drafts  are  of  value  : 

1.  As  an  aid  and  a  protection  in  the  collection  and  payment  of 

debts. 

2.  As  a  means  of  avoiding  the  inconvenience,  risk,  expense, 

and  delay  incident  to  the  transmission  of  specie  or  legal 
tender. 

Illustration.  —  A  in  New  York  has  stored  ten  car  loads  of  grain 
in  Chicago.  He  has  agreed  to  deliver  five  of  these  to  B  in  Chicago. 
He  therefore  orders  C,  the  holder  of  the  grain,  to  deliver  the  speci- 
fied amount  at  a  specified  time.  This  obviates  the  necessity  of  send- 
ing the  grain  from  New  York  to  Chicago. 

Or  again,  A  in  Philadelphia  has  deposited  in  a  New  York  bank  a 
sum  of  money.  He  owes  1^500.00  to  B,  also  in  New  York.  A  draws 
a  check  (an  order  to  pay)  on  his  New  York  bank  and  mails  it  pay- 
able to  B's  order  to  B,  to  whom  the  money  is  transferred. 

Thus,  in  both  cases  the  indebtedness  of  A  has  been  liquidated  by 
an  order  transferring,  in  the  first  place,  the  ownership  of  the  grain  ; 
in  the  second,  the  money  to  B. 

In  the  second  example  the  check,  while  symbolic  of  a  certain  sum 
of  money  in  the  bank,  is  also  a  credit  instrument,  and  B,  by  deposit- 
ing the  check  in  his  bank,  is  credited  by  that  bank  with  the  sum 
called  for  on  A's  bank.  A,  of  course,  could  send  the  if  500.00  in 
specie  or  legal  tender  direct  to  B. 

A  more  striking  example  of  the  transfer  of  credit  is  where  A 
in  New  York  owes  $1000.00  to  B  in  Chicago,  and  C  in  Chicago  owes 
81000.00  to  A  in  New  York.  A  desires  to  settle  his  account  with 
B,  and  C  desires  to  settle  his  account  with  A.  A  might  send  the 
$1000.00  to  B  and  C  send  his  f  1000.00  to  A;  but  instead  A  requires 
C  to  pay  B,  thus  cancelling  A's  indebtedness  to  B  and  C's  indebted- 
ness to  A.  In  the  former  illustrations  given  there  was  a  transfer  of 
grain  and  money;  here  there  is  a  transfer  of  indebtedness,  which  il- 
lustrates one  of  the  chief  uses  of  drafts. 


DRAFTS 


97 


( 


Whereas  the  instruments  used  in  the  three  illustrations  on  the  pre- 
vious page  are  all  "  Orders,"  the  term  "  Draft "  is  applied  only  to  the 
last  two,  which  are  for  the  payment  of  money.  Thus  we  see,  as  in 
the  second  illustration,  that  orders  of  depositors  upon  their  banks  are 
really  drafts,  but  being  such  a  general  class,  these  particular  drafts 
are  known  as  "checks." 

Kinds  of  Drafts.  —  Drafts  may  be  classified  as  follows: 

1.  Personal. 

2.  Bank. 

In  point  of  time  of  payment,  personal  drafts  are  either. 

((a)    days  after  date. 
(6)    days  after  sight. 
2.    Sight  or  demand. 

Bank  drafts  are  always  "sight"  or  "demand." 
From  the  standpoint  of  parties,  personal  drafts  may  be  either: 

1.  Two  party. 

2.  Three  party. 
Bank  drafts  are  always  three-party  drafts. 

A  Personal  Time  Draft,  with  Two  Parties 


1.    Time 


J^C£L 


f^^'^^>^^  ^a(^^^^  .^Z^^yty  ^/7ji> ^^J(/y^ 


Qt^rjcpu^ir?(y]/^^  -ydCfA^- 


^^^  y/^^^^^-cx^l^a^^^^^  " 


fe^^ 


In  the  illustration,  Alton  B.  Kirk  is  both  the  Drawer  and  Payee. 

Inserting  the  words  "  Ten  days  sight "  instead  of  "  Sixty  days 
after  date  "  in  the  above  illustration,  we  have  another  form  of  time 
draft.  It  means  that  ten  days  after  presentment  to  P.  T.  Barnes, 
the  drawee,  it  must  be  paid.  Again,  by  inserting  the  words  "  At 
sight "  instead  of  "  Sixty  days  after  date,"  we  have  what  is  known 
as  a  "  Sight  draft,"  or  an  order  to  pay  the  draft  immediately  on  pre- 
sentment to  the  Drawee.  This  form  is  commonly  used  to  collect 
debts.     Drafts  payable  "  at  sight "  or  "  on  demand  "  are  identical. 


98     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 
A  Personal  Time  Draft,  with  Three  Parties 


//C4PC0^ 


^yyju^  .^z^^^^^^ii:^,^^^^^^^^  A^?it/L 


'/.f9/J 


^JcTy/ii^ 


f(B^^y_.^^.^^cx^t.a^^§<^ 


The  same  changes  as  to  time  may  be  made  here  as  in  the  two- 
party  draft. 

A  Bank  Draft 


No 


,^4>f 


Philadelphia,  Pa.  yyUU4>^jS'    m3, 


THE  COMMERCIAL  EXCHANCS  BANK 


Pi^f^  the  order  of     ^C/^Chfy/u    >^e^y^^ 


.%^^£Jl 


To  MICHIGAN  NATIONAL  BANK, 

CHICAGO 


;) 


<y>^>^v.< 


-yPollare. 


'Cashier  < 


The  above  order  is  addressed  to  one  bank  by  another  bank,  and 
it  is  always  true  of  a  bank  draft  that  the  drawer  and  drawee  are 
banks,  not  persons.  It  finds  its  greatest  usefulness  in  instances 
where  the  seller  of  merchandise,  located  in  a  different  city  than  that 
of  the  purchaser,  and  unfamiliar  with  the  latter's  financial  standing, 
will  not  ship  the  goods  on  the  purchaser's  personal  check.  The 
procedure  is  usually  as  follows :  Alton  B.  Kirk  has  purchased 
$500.00  worth  of  Merchandise  from  James  Garvin,  of  Chicago.  He 
desires  to  purchase  the  above  draft  from  his  bank,  the  Commercial 
Exchange,  which  charges  him  a  nominal  sum  for  the  accommodation. 
He  makes  out  a  check  payable  to  the  bank  for  the  amount  of  the 
draft  plus  the  bank's  charge.     In  exchange  for  this  he  receives  the 


3 


i_ 


DRAFTS 


99 


above  draft,  and,  indorsing  it  properly,  forwards  it  to  James  Garvin. 
These  bank  drafts  are  possible  because  banks  have,  as  agents,  other 
banks,  called  correspondents,  in  financial  centers,  with  whom  they 
carry  deposits  against  which  these  orders  are  drawn. 

Negotiability.  —  Like  other  instruments  having  the  phrase  "  to 
the  order  of  "  or  "  bearer,"  drafts  are  negotiable,  and  are  transfer- 
able by  indorsement  and  delivery.  They  are  peculiar,  however,  in 
that  their  negotiability  dates  only  from  the  "acceptance"  by  the 
drawee. 

Acceptance.  —  By  "  acceptance  "  is  meant  the  expressed  intention 
of  the  drawee  to  honor  the  order  made  on  him  by  the  drawer;  or  in 
other  words,  his  promise  to  pay  the  sum  requested  on  the  date 
specified.  He  may  make  this  promise  by  separate  writing  in  the 
form  of  memorandum  or  letter  addressed  to  the  drawer,  but  ordinarily 
it  is  done  by  simply  writing  or  stamping  across  the  face  of  the 
draft  itself  the  word  "  Accepted,"  with  the  date,  place  of  payment, 
and  signature. 

An  Accepted  Draft 


In  the  case  of  a  "sight"  as  "ten  days  sight"  draft  the  date  of 
acceptance  is  particularly  important,  as  in  those  instances  the  time 
runs,  not  from  the  date  of  the  draft  itself,  but  from  the  date  of  its 
acceptance. 

Characteristics.  —  By  this  writing  of  the  drawee  the  draft  loses 
its  name  as  such,  and  is  termed  an  "  Acceptance,"  losing  its  chief 
characteristic  of  being  an  order  by  the  drawer  on  the  drawee  to  pay 
a  certain  sum,  to  become  a  promise  by  the  drawee  (by  his  acceptance) 
to  pay  the  payee  the  agreed  amount.  Take  for  example  the  draft 
given  above,  previous  to  the  drawing  of  which  the  relationship  of 
the  parties  must  have  been  as  follows:     Francis  Sheridan  of  Buffalo 


100     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

owed  Paul  Jones  of  Philadelphia,  and  the  latter  in  turn  owed  Theo- 
dore Roberts  of  Scranton,  Pa.,  the  sum  of  i?  1000.00.  Jones  is 
desirous  of  paying  Roberts  and  at  the  same  time  of  collecting  the 
money  due  him  from  Sheridan.  He  draws  the  draft  as  per  illustra- 
tion and  mails  it  to  Sheridan,  wlio,  after  accepting  it  as  indicated, 
returns  it  to  Paul  Jones,  or  at  his  direction  to  Roberts,  wlio  in  turn 
receives  it  in  payment  of  Paul  J(mes's  debt  to  him. 

What  happens,  then,  is  this  :  Jones  has  Sheridan  assume  his 
(Jones')  indebtedness  to  Roberts.  Slieridan  pays  Jones  by  giving 
him  his  "  promise  to  pay  "  to  Roberts,  and  Roberts  releases  Jones  of 
his  indebtedness  on  the  receipt  of  Sheridan's  "promise  to  pay." 
Therefore,  by  regarding  an  "Acceptance"  as  a  Promissory  Note, 
the  recording  of  which  is  now  familiar,  we  need  make  no  special 
rule,  but  simply  apply  the  principles  of  debit  and  credit,  and  make 
the  necessary  entries. 

Jones'  entry  in  this  instance  is  made  in  his  Journal  as  follows : 

Theodore  Roberts  $1000.00 

Francis  Sheridan  $  1000. 00 

Sheridan  is  credited,  having  accepted  a  30-day  draft  payable  to 
Roberts.  Roberts  is  debited,  being  responsible  to  Jones  for  the  pay- 
ment, and  Sheridan  is  credited  on  giving  up  the  responsibility  of  his 
indebtedness  to  Jones.  Thus,  Roberts'  and  Sheridan's  accounts, 
before  the  adjustment,  appear  as  follows: 

Theodore  Roberts 


1(KX)    00 


3 


DRAFTS 
After  the  acceptance  they  are  : 

Theodore  Roberts 


101 


1000 


00 


1000 


00 


Francis  Sheridan 


1000 


00 


1000 


00 


Roberts,   on    receiving   what   now   is   equivalent   to   Sheridan's 
written  promise  to  pay,  makes  the  following  Journal  entry : 

Notes  Receivable  $  looo.  00 

Paul  Jones  f  1000.00 

Received  Acceptance  in  settle- 
ment of  account 

Note  that  Paul  Jones  is  credited,  and  not  Sheridan,  for  there  is 
absolutely  no  connection  between  Roberts  and  Sheridan.  Notes 
Receivable  is  debited  because  it  is  now  responsible  for  the  indebted- 
ness previously  shown  in  Jones'  account,  which  account,  having 
shifted  this  responsibility,  is  credited. 

The  entry  on  Sheridan's  books  is : 


Paul  Jones 

Notes  Payable 
Accepted  30-day  draft 
in  full  payment  of  account 


f 1000. 00 


f 1000. 00 


Paul  Jones  is  debited  as  he  is  responsible  for  the  liability  granted 
to  him  by  Notes  Payable  (credit). 

The  entries  of  the  drawer,  drawee,  and  payee  of  any  three-party 
time  draft  are  on  similar  lines.  Had  Jones  been  payee  as  well  aa 
drawer,  making  it  a  two-party  draft,  his  entry  would  have  been ; 


I 


102     A  FIRST  YEAR  IN  BOOKECEEPING  AND  ACCOUNTING 


Notes  Receivable 

Francis  Sheridan 


$1000.00 


11000.00 


Sheridan's  entry  would  have  been  the  same  as  before. 

As  has  been  said,  this  form  of  draft  is  used  extensively  in  busi- 
ness for  the  collection  of  debts  past  due,  as  are  also  sight  drafts, 
the  bank  acting  as  agents  for  collection. 

When  these  sight  drafts  are  not  used  merely  as  a  dun  on  a  debtor, 
the  bank  may  give  the  drawer  credit  on  its  books  immediately,  trust- 
ing to  their  acceptance  by  the  drawee.  For  this  reason  in  book- 
keeping sight  drafts  are  considered  as  cash,  and  the  entries  made 
accordingly. 

A  Sight  Draft 


DRAFTS 


103 


Make  the 
Feb.  1,  1913.— 

Feb.  2,  1913.— 

Feb.  3,  1913.— 
Feb.  4,  1913.— 


.^^ 


<Qea^. 


(A 


y3.  yc^^/f^- 


rUyrt/ 


jf.^c^.x^'C^^Cte'Ci^ ' 


2^  ^t/^.€^ 


L 


o#/^^^       ^y^^'^y^,^^^ 


/liA^y<^ 


Feb.  6,  1913.— 


Feb.  6,  1913.— 


3 


Alton  B.  Kirk's  entry  is : 

Cash 

A.  L.  Smathers 
Drew  sight  draft  in  settle- 
ment of  bill,  3/12/13 

Smathers'  entry  is : 

Alton  B.  Kirk 

Cash 
Accepted  sight  draft  in 
payment  of  invoice,  3/12/13 


$500.00 


$500.00 


Feb.  8,  1913.— 
Feb.  9.  1913.— 


500.00 


$500.00 


PROBLEM  34 

entries  to  record  the  following  transactions  : 

-Drew  on  George  Carey,  for  $300.00  at  10  days  sight,  in  favor 

of  N.  Law  ton. 

L.  Simmons  of  New  York  agreed  to  honor  A.  L.  Pope's  sight 

draft  for  %  500.00,  so  Pope  drew  on  him  in  favor  of  Bernard 

Weaver,  also  of  New  York. 

A.  L.  Pope  drew  on  A.  H.  Minds  for  %  600.00  at  sight,  in  favor 

of  himself.     The  draft  was  accepted. 
R.  H.  Wilson  accepted  A.  L.  Pope's  30-day  draft  for  %  1000.00, 
drawn  on  him  to-day,  in  Pope's  favor.     Pope  took  R.  H. 
Wilson's  Acceptance  of  even  date  to  bank  and  had  it  dis- 
counted. 
A  L.  Pope  accepted  the  %  500.00  sight  draft  drawn  on  him  by 

R.  Hamilton. 
A.  L.  Pope  received  a  sight  draft  for  $800.00  drawn  in  his 
favor  by  H.  Markham,  and    drawn  upon  L.  Neely,  who 
accepted  it. 
A  L.  Pope  received  from  A.  B.  Ames  a  60-day  draft  dated 
to-day  for  %  1200.00,  drawn  upon  C.  D.  Willard,  who  wrote 
his  acceptance  across  the  face  of  the  draft. 
Pope  took  Willard's  acceptance   to  the  bank  and  had   it  dis- 
counted. 
Albert  James  owed  A  L.  Pope  $  485.00  on  an  open  account, 
and  the  account  was  due  to-day.     James  could  not  settle 
his  account  by  cash,  but  asked  Pope   to  take  a  60-day 
acceptance  of  R.  Ely  for  $  500.00  in  payment.     The  date 
of  the  acceptance  was  Jan.   8.     Pope  took  the  draft  at 
its  face  value  less  discount  at  6  %  for  the  unexpired  time. 
L.  B.  Jones  accepted  a  60-day  draft  for  $  400.00  dated  to-day, 
drawn  upon  him  by  T.  H.  Hickson  in  favor  of  P.  C.  Wells. 
A  L.  Pope  owed  C.  E.  Haines  of  New  York  %  1000.00,  and 
Haines  requested  Pope  to  remit  by  a  bank  draft  on  New 
York.     Pope  gave  his  check  for  $  1000.00  to  his  bank  and 
received  in  return  a  draft  to  his  order  on  a  New  York  bank, 
which  he  indorsed  and  mailed  to  Haines. 


Sight  drafts  are  used  largely  in  connection  with  Bills  of  Lading, 
a  full  discussion  of  which  is  found  in  a  subsequent  chapter  devoted 
to  that  subject. 


I 


! 


CHAPTER  XVII 

BILLS   OF  LADING 

Closely  allied  to  the  discussion  of  Drafts  is  the  Bill  of  Lading, 
illustrations  of  which  are  shown  on  pages  105  and  106. 

Our  treatment  of  this  subject  may  be  said  to  begin  and  end  in 
the  accompanying  illustrations,  for  the  instruments  themselves  are 
self-explanatory.  For  the  sake  of  clarity,  we  summarize  their  sev- 
eral characteristics. 

Defimtion.  —  A  bill  of  lading  is  a  quasi-negotiable  instrument, 
given  by  the  carrier  to  the  shipper  as  an  acknowledgment  of  the 
receipt  of  the  goods,  and  a  contract  to  carry  them.  Its  three  chief 
characteristics  are  that  it  is : 

1.  Quasi-negotiable. 

2.  A  receipt. 

3.  A  contract. 

Negotiability.  —  By  "  quasi-negotitable  "  is  meant  that  it  is  nego- 
tiable in  a  restricted  sense ;  that  is  to  say,  a  bill  of  lading  is  not  so 
readily  current  as  the  other  negotiable  instruments  we  have  discussed 
(promissory  notes  and  drafts).  The  purchaser  of  a  bill  of  lading, 
having  reason  to  believe  that  the  vendor  is  not  the  owner  of  the  bill, 
or  that  it  is  held  to  secure  the  payment  of  an  outstanding  draft,  is 
not  entitled  to  hold  merchandise  covered  by  the  bill  against  its  true 
owner.  But  it  is  ordinarily  negotiable,  in  that  it  may  be  trans- 
ferred by  indorsement  and  delivery.  Negotiability  applies  only  to 
those  bills  of  lading  marked  "Order"  and  not  to  those  marked 
"  Straight." 

Receipt.  —  When  the  goods  are  turned  over  by  the  shipper  to  the 
carrier  and  nothing  further  remains  for  the  shipper  to  do,  the 
carrier's  liability  for  the  safety  of  the  goods  begins.  A  carbon 
copy  (blue)  of  the  original  bill  of  lading,  called  the  Memorandum, 
is  given  the  shippei  as  a  receipt,  which  is  good  evidence  not  only  of 
the  quantity  and  kind  of  goods  received,  but  also  of  their  condition. 

Contract.  —  A  bill  of  lading,  however,  is  more  than  a  receipt  for 
goods ;  it  is  a  contract,  and  as  such  is  subject  to  the  general  rules  of 

104 


Portn  9-     1.1 


^eddin*; 


Revised  April  1st.  I009 — West  Bound  Lake  Traffic  Clause  added  to  SaoUon  9. 


Philadelphia  &  Reading  Railway  Qompany. 


STRAIGHT  BILL  OF  LADING— ORIGINAL— NOT  NEGOTIABLE. 


Shippers  No.. 
Agents  No.... 


KBCBIVBD,  aobjcct  to  the  duMfications  utd  tariffs  in  effect  oa  the  date  of  ittne  of  this  Original -Bill  of  Ladinf, 


J91 


the   praf>erty   dcacrtbed  below,   in  apparent  gooil  ontrr,  except  ai 


caoditioti  of  ooatenlB  oC  package*  uoknown),  marketl,  coosigneil  j»ti(l  de^tineil  as  indicatnl  below,   wliich  said  Cotn 
to  iu  usual  place   of  tteiiTery  at  aaid   deithuuion,   if  00   its  roxl^.oUierHise   to  deliver   to  anoiher  carrier  oh   the 


aetod  (coatcnta  and  caoditton  of  oootenti  o( 

yMjr  agree*  to  carry  to  iu  usual  place   of  «U  . __   _   

fWIe  to  said  destuiatioo.  It  ta  motually  agreed,  as  to  eacii  carrier  of  all  or  any  of  saitl  property  o»-er  all  01  any  portion  of  said  route, 
todcsbnaliMi,  and  as  to  each  party  at  any.  time  intrrnted  in  all  or  any  of  <sxid  property,  that  ewry  strvicc  to  be  performed  here- 
under shall  be  subicct  to  all  the  conditiona,  whether  printed  or. written,' lieieiti  conUiued  (including  conditions  ou  back  'lereof)  and  wllicli 
•ic  agnta  to  bjr  the  ahipoer  and  accepted  for  hnntrif  and  hia  assigns. 


2V  RaU  of  F*^hi  from. 


J»  in  Cente  per  100  Lb$. 


V-.TlM*  tsl 


irittClaM 


VtaaciM* 


W  aatatt 


NTMCIwa 


IFHalan 


IF  Rate  U 


IF  4Ui  Class 


IF  6tli  Class 


IF  eth  Class 


(MaU  AddiMS— Not  for  yuifmtt  aT  IMlMty.) 


3 


Coosigoed  to 
OeBtiostioo,^ 
Route, 


-Stste  of- 


-County  of. 


.Car  Initial. 


.  C*ir  No.. 


M. 
PftCKMH 


OEanPTUM  OF  ARTNaiS  AND  SPiCUL  MAttS 


WEIGHT 
(SilJBctlsCsmcllas) 


CUSS  OS 
■AH 


CHECK 
COLUM 


*ir  cliai-ges  are  tu  be 
nrepaui,  M-ritc  or  stamp 
Lei-e,  "To  be  Prepaid." 


Received  $„..._-. ™....,.i.._. 
to  apply  iu  (Trepayment 
of    tlic    cliaiyes-  ou    the 

troperty   ae8.cribed 
ereon. 


(TIte  slcaatur*  h*r*  aekBovladc* 
«ily  th*  smoual  prafkld.) 


Charges  Advanced : 


J>bip|ter. 


..Agent 


Pter. 


Per- 


Tvi.  uin  nf  I nAitt  Is  Is  ta  sicMd  by  lb*  ■Uppw  aad  afut  tt  Um  carrier  i«Miia«  smm.) 


105 


w 


f^eadins 


Form  9— No.  2 

Revised  April  1st,  1009-W«st  Bound  Lalce  Traffic  Clause  addad  to  Section 

Philadelphia  &  Reading  Railway  Company. 


ORDER   BILL  OF   LADING— ORIGINAL. 


Shippers  No. 
Agents  No. 


RECEIVKl),  subjcit  ti>  tlic  claMtficatioiii  and  tariffs  iit  rffcvt  <>ii  lUc-  ilue  of  is-uc  uf  llii-.  OnKiii.tl  Bill  oj  UailinK, 

at  Philadelphia,  Td.,  19 

fiom _  _  .- _ tlio   property   (lo««:riI>c<l  Iwtow,   in  arp"™"*  8™*'  «"!".  •?'*P*  •• 

ootnl  (contrnts  aiul  condition  of  contents  o(  packagi-s  unknown),  markcM,  «.'t>usi^;nei|  .inil  <U-.tinc<l  as  itialuMiot  beluw,  which  «u<t  Cmn- 
[lanjr  agrws  to  carry  to  its  usual  plact.*  of  delivery  at  saul  diMtiiiilwn,  if  on  its  rowl,  ottivrwise  t<>  «l<.liver  tij  another  carrier  on  the 
route  to  snid  «lesti nation.  It  isi  mutu.Ally  agreiHl,  as  to  each  cnrrior  nf  all  or  any  of  said  propt-rty  over  .«ll  of  any  portion  of  s.iid  lonte 
to  destination,  and  as  to  each  party  at  any  "time  intcrestetl  in  all  or  any  of  s.iid  property,  tli.it  extry  service  to  be  pcrfonnrtl  here- 
under shall  be  subject  to  all  Uie  conditioiis,  whether  printed  or  written,  hereiti  cuntaiucU  (including  cuuditioiis  oa  boclc  hereof)  au>t  which 
are  agreed  to  by  the  ihqiper  and  aoceptetl  for  him.sclt  and  his  as>-i)^s. 

The  surrender  of  this  Orlictnal  ORDER   Bill  of  Ladinc  proper^    Indor.s^d  shall   h«  required  h«lore  th«  dellv«ry  of  the 
rty.    Inspectloii  of  ifroperty  covered  by  this  bill  of  ladin,;  will  not  be  pernlltted  unless  provided  by  law  or  unless  permission 
latforscd  oa  this  orfxinal  Mil  of  IStfiag  or  given  In  wrttlng  by  the  shipper. 


propcrt; 
blatfoi 


The  Rate  of  Freight  from 


to 


is  in  Cents  per  100  Lbs. 


m 


ITKiaaM 


irtM 


IF  nna  *• 


»sieiMs 


'■■leM  I  irSklaflt 


IP4lkC«M« 


IFSMClM*    IFWkClaii 


irSNcW 


I    • 
1  "• 


<MKtl  A'Mti-si.— No(i«>r  purpuw* a(  iMlinrrf.) 


Consigned  to  ORDER  OF 

Destinatiou, 

Notify 

At  - . 

Route,- 


,  .State  of -  . 

Sf.ntr   of  

Car  Initial 


Coiiuty  of.  ... 

..County   of    ... 
Car  No. 


NO. 
PkCKAGES 


KSCfflPTION  OF  ARTIGLES  MO  SPECIAL  MARKS 


WEIGHT 
(S«b)wltaC<n«ctiM) 


;  CUSS  OR 
RATE 


CHECK 
COLUMN 


'If  cluuxes   are  to   be 

E repaid,   write    or   stamp 
ere,  "To  be  Prepaid." 


Keceived  % — 

to  apply  iu  prepayment 
of  the  ckarees  oo  tbe 
property  aeaoribed 


(Tit*  •fgiutura  b*ra  aek  nartoilBM 
oatjr  iluf  aiDuunt  |.f>>|»i(t.| 


Ctiaqjea  Advaooed : 


JShipi>cr. 


Agcot 


Per 


Per- 


IThto  Bill  oT  Indian  ta  to  b>  Mgacd  by  Uio  iitiirprr  aad  «§»••  of  the  eaxrwr  iMuiaf  < 


I 


106 


BILLS  OF  LADING 


107 


law  interpreting  such  instruments.  It  assumes  the  characteristics 
of  a  contract  after  the  goods  are  received  for  carriage,  the  agree- 
ment being  between  the  shipper  and  the  carrier  that  the  latter  shall 
convey  the  goods  named  to  their  proper  destination,  subject  to  the 
conditions  printed  on  the  back  of  the  bill  of  lading.  A  copy  of 
these  conditions  follows : 

Conditions 

Sec.  1.  The  carrier  or  party  in  possession  of  any  of  the  property  herein 
described  shall  be  liable  for  any  loss  thereof  or  damage  thereto,  except  as  herein- 
after provided. 

No  carrier  or  party  in  possession  of  any  of  the  property  herein  described 
shall  be  liable  for  any  loss  thereof  or  damage  thereto  or  delay  caused  by  the  act 
of  God,  the  public  enemy,  quarantine,  the  authority  of  law,  or  the  act  or  default 
of  the  shipper  or  owner,  or  for  differences  in  the  weights  of  grain,  seed,  or  other 
commodities  caused  by  natural  shrinkage  or  discrepancies  in  elevator  weights. 
For  loss,  damage,  or  delay  caused  by  fire  occurring  after  forty-eight  hours  (exclu- 
sive of  legal  holidays)  after  notice  of  the  arrival  of  the  property  at  destination  or 
at  port  of  export  (if  inten<led  for  export)  has  been  duly  sent  or  given,  the  carrier's 
liability  shall  be  that  of  warehouseman  only.  Except  in  case  of  negligence  of  the 
carrier  or  party  in  possession  (and  the  burden  to  prove  freedom  from  such  negli- 
gence shall  be  on  the  carrier  or  party  in  possession),  the  carrier  or  party  in 
possession  shall  not  be  liable  for  loss,  damage,  or  delay  occuring  while  the  property 
is  stopped  and  held  in  transit  upon  request  of  the  shipper,  owner,  or  party  en- 
titled to  make  such  request ;  or  resulting  from  a  defect  or  vice  in  the  property,  or 
from  riots  or  strikes.  When  in  accordance  with  general  custom,  on  account  of 
the  nature  of  the  property,  or  when  at  the  request  of  the  shipper  the  property  is 
transported  in  open  cars,  the  carrier  or  party  in  possession  (except  in  case  of  loss 
or  damage  by  fire,  in  which  case  the  liability  shall  be  the  same  as  though  the 
property  had  been  carried  in  clo8e<l  cars)  shall  be  liable  only  for  negligence,  and 
the  burden  to  prove  freedom  from  such  negligence  shall  be  on  the  carrier  or  party 
in  possession. 

Sec.  2.  In  issuing  this  bill  of  lading  this  company  agrees  to  transport  only 
over  its  own  line,  and  except  as  otherwise  provided  by  law  acts  only  as  agent  with 
respect  to  the  portion  of  the  route  beyond  its  own  line. 

No  carrier  shall  be  liable  for  loss,  damage,  or  injury  not  occuning  on  its  own 
road  or  its  portion  of  the  through  route ;  nor  after  said  property  has  been  delivered 
to  the  next  carrier,  except  as  such  liability  is  or  may  be  imposed  by  law,  but 
nothing  contained  in  this  bill  of  lading  shall  be  deemed  to  exempt  the  initial 
carrier  from  any  such  liability  so  imposed. 

Sec.  3.  No  carrier  is  bound  to  transport  said  property  by  any  particular 
train  or  vessel,  or  in  time  for  any  particular  market  or  otherwise  than  with  rea- 


I  « 


108     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

sonable  dispatch,  unless  by  specific  agreement  indorsed  hereon.  Every  carrier 
shall  have  the  right  m  case  of  physical  necessity  to  forward  said  property  by  any 
railroad  or  route  between  the  point  of  shipment  and  the  point  of  destination ;  but 
if  such  diversion  shall  be  from  a  rail  to  a  water  route,  the  liability  of  the  carrier 
shall  be  the  same  as  though  the  entire  carriage  were  by  rail. 

The  amount  of  any  loss  or  damage  for  which  any  carrier  is  liable  shall  be 
computed  on  the  basis  of  the  value  of  the  property  (being  the  bona-fide  invoice 
price,  if  any,  to  the  consignee,  including  the  freight  charges,  if  prepaid)  at  the 
place  and  time  of  shipment  under  this  bill  of  lading,  unless  a  lower  value  has 
been  represented  in  writing  by  the  shipper  or  has  been  agreed  upon  or  is  deter- 
mined by  the  classification  or  tariffs  upon  which  the  rate  is  based,  in  any  of  which 
events  such  lower  value  shall  be  the  maximum  amount  to  govern  such  computa- 
tion, whether  or  not  such  loss  or  damage  occurs  from  negligence. 

Claims  for  loss,  damage,  or  delay  must  be  made  in  writing  to  the  carrier  at 
the  point  of  delivery  or  at  the  point  of  origin  within  four  months  after  delivery  of 
the  property,  or,  in  case  of  failure  to  make  delivery,  then  within  four  months  after 
a  reasonable  time  for  delivery  has  elapsed.  Unless  claims  are  so  made,  the  carrier 
shall  not  be  liable. 

Any  carrier  or  party  liable  on  account  of  loss  of  or  damage  to  any  of  said 
property  shall  have  the  ftdl  benefit  of  any  insurance  that  may  have  been  effected 
upon  or  on  account  of  said  property,  so  far  as  this  shall  not  avoid  the  policies  or 
contracts  of  insurance. 

Sec.  4.  All  property  shall  be  subject  to  necessary  cooperage  and  baling  at 
owner's  cost.  Each  carrier  over  whose  route  cotton  is  to  be  transported  hereunder 
shall  have  the  privilege,  at  its  own  cost  and  risk,  of  compressing  the  same  for 
greater  convenience  in  handling  or  forwarding,  and  shaU  not  be  held  responsible 
for  deviation  or  unavoidable  delays  in  procuring  such  compression.  Grain  in  bulk 
consigned  to  a  point  where  there  is  a  railroad,  public,  or  licensed  elevator,  may 
(unless  otherwise  expressly  noted  herein,  and  then  if  it  is  not  promptly  unlciaded) 
be  there  delivered  and  placed  with  other  grain  of  the  same  kind  and  grade  with- 
out respect  to  ownership,  and  if  so  delivered,  shall  be  subject  to  a  lien  for  elevator 
charges  in  addition  to  all  other  charges  hereunder. 

Sec.  5.  Property  not  removed  by  the  party  entitleil  to  receive  it  within 
forty-eight  hours  (exclusive  of  legal  holidays)  after  notice  of  its  arrival  has  been 
duly  sent  or  given  may  be  kept  in  car,  depot,  or  place  of  delivery  of  the  carrier, 
or  warehouse,  subject  to  a  reasonable  charge  for  storage  and  to  carrier's  responsi- 
bility as  warehouseman  only,  or  may  be,  at  the  option  of  the  carrier,  removed  to 
and  stored  in  a  public  or  licensed  warehouse  at  the  cost  of  the  owner  and  there 
held  at  the  owner's  risk  and  without  liability  on  the  part  of  the  carrier,  and  sub- 
ject to  a  lien  for  all  freight  and  other  lawful  charges,  including  a  reasonable  charge 
for  storage. 

The  carrier  may  make  a  reasonable  charge  for  the  detention  of  any  vessel  or 
car.  or  for  the  use  of  tracks  after  the  car  has  been  held  forty-eight  hours  (exclusive 


!> 


BILLS  OF  LADING 


109 


of  legal  holidays),  for  loading  or  unloading,  and  may  add  such  charge  to  all  other 
charges  hereunder  and  hold  such  property  subject  to  a  lien  therefor.  Nothing  in 
this  section  shall  l>e  construed  as  lessening  the  time  allowed  by  law  or  as  setting 
aside  any  local  rule  affecting  car  service  or  storage. 

Property  destineil  to  or  taken  from  a  station,  wharf,  or  landing  at  which  there 
is  no  regularly  appointed  agent  shall  be  entirely  at  risk  of  owner  after  unloaded 
from  cars  or  vessels  or  until  loaded  into  ciirs  or  vessels,  and  when  received  from 
or  delivered  on  private  or  other  sidings,  wharves,  or  landings,  shall  be  at  owner's 
risk  until  the  cars  are  attached  to  and  after  they  are  detached  from  trains. 

Sec.  6.  No  carrier  will  carry  or  be  liable  in  any  way  for  any  documents, 
specie,  or  for  any  articles  of  extraordinary  value  not  specifically  rated  in  the  pub- 
lished classification  or  tariffs,  unless  a  special  agreement  to  do  so  and  a  stipulated 
value  of  the  articles  are  indorsed  hereon. 

Sec.  7.  Every  party,  whether  principal  or  agent,  shipping  explosive  or  dan- 
gerous goods,  without  previous  full  written  disclosure  to  the  carrier  of  their  nature, 
shall  be  liable  for  all  loss  or  <lamage  caused  thereby,  and  such  goods  may  be  ware- 
housed at  owner's  risk  and  expense  or  destroyed  without  compensation. 

Sec.  8.  The  owner  or  consignee  shall  pay  the  freight  and  all  other  lawful 
charges  accruing  on  said  property,  and,  if  required,  shall  pay  the  same  before  de- 
livery. If  upon  inspection  it  is  ascertained  that  the  articles  shipped  are  not  those 
described  in  this  bill  of  lading,  the  freight  charges  must  be  paid  upon  the  articles 
actually  shipped. 

Sec.  9.  Except  in  case  of  diversion  from  rail  to  water  route,  which  is  pro- 
vided for  in  section  3  hereof,  if  all  or  any  part  of  said  property  is  carried  by  water 
over  any  part  of  said  route,  such  water  carriage  shall  be  performed  subject  to  the 
liabilities,  limitations,  and  exemptions  provided  by  statute  and  to  the  conditions 
contained  in  this  bill  of  lading  not  inconsistent  with  such  statutes  or  this  section ; 
and  subject  also  to  the  condition  that  no  carrier  or  party  in  possession  shall"  be 
liable  for  any  loss  or  damage  resulting  from  the  perils  of  lakes,  sea,  or  other 
waters ;  or  from  explosion,  bursting  of  boilers,  breakage  of  shafts,  or  any  latent 
defect  in  hull,  machinery,  or  appurtenances ;  or  from  collision,  stranding,  or  other 
accidents  of  navigation,  or  from  prolongation  of  the  voyage.  And  any  vessel 
carrying  any  or  all  of  the  property  herein  described  shall  have  the  liberty  to  call 
at  intermediate  ports,  to  tow  and  be  towed,  and  assist  vessels  in  distress,  and  to 
deviate  for  the  purpose  of  saving  life  or  property. 

The  term  "  water  carriage  "  in  this  section  shall  not  be  construed  as  including 
lighterage  across  rivers  or  in  lake  or  other  harbors,  and  the  liability  for  such 
lighterage  shall  be  governed  by  the  other  sections  of  this  instrument. 

"If  the  property  is  being  carried  under  a  tariff  which  provides  that  any 
carrier  or  carriers  party  thereto  shall  be  liable  for  loss  from  perils  of  the  sea,  then 
as  to  such  carrier  or  carriers  the  provisions  of  this  section  shall  be  modified  in 
accordance  with  the  provisions  of  the  tariff,  which  shall  be  treated  as  incorporated 
into  the  conditions  of  this  Bill  of  Lading." 


If 


110     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Sec.  10.  Any  alteration,  addition,  or  erasure  in  this  bill  of  lading  which 
shall  be  made  without  an  indorsement  thereof  hereon,  signed  by  the  agent  of  the 
carrier  issuing  this  bill  of  lading,  shall  be  without  ettect,  and  this  bill  of  lading 
shall  be  enforceable  acconling  to  its  original  tenor. 

Conditions.  —  Some  of  the  more  important  conditions  are  that  the 
carrier  shall  not  be  liable  for  loss  by : 

1.  Acts  of  God,  public  enemy,  or  quarantine. 

2.  The  variance  in  the  weights  of  seeds  or  cereals  by  shrinkage. 

3.  Fire,  after  forty-eight  hours  from  arrival  in  warehouse. 

4.  Stoppage  by  riots  or  shipper's  orders. 

5.  Claims  after  four  months. 

Act  of  June  27, 1908.  —  On  June  27, 1908  the  Interstate  Commerce 
Commission  took  official  cognizance  of  bills  of  lading  by  prescribing 
uniform  forms  to  be  used  by  the  interstate  railroads,  as  follows: 

1.  The  vouchers  for  a  "  Straight "  Bill  of  Lading  to  be  used  in 

connection  with  "  straight "  shipments  should  consist  of : 
(a)   Straight  Bills  of  Lading. 
(h)   Original  Shipping  Order. 
(<?)    Memorandum  (all  to  be  printed  on  white  paper). 

2.  The  vouchers  for  an  "  Order "  Bill  of  Lading  to  apply  to 

"  Order  "  shipments  should  consist  of  : 
(a)   Original  (to  be  printed  on  yellow  paper). 
(6)   Shipping  Order, 
(c)    Memorandum  (last  two  to  be  printed  on  blue  paper). 

3.  All  vouchers  used  should  be  8^  inches  wide,  no  restrictions 

being  made  as  to  length. 

Distinction  between  Straight  and  Order  BiU  of  Lading.  —  The  dis- 
tinction between  the  straight  and  order  bill  of  lading  is  that  goods 
sent  as  "  straight "  shipment  are  delivered  to  the  consignee  without 
his  surrendering  the  original  bill ;  and,  furthermore,  this  form  is  not 
negotiable. 

On  the  other  hand,  goods  shipped  on  order  cannot  be  secured  by 
the  consignee  without  his  surrender  of  the  original  bill.  This  form, 
previously  mentioned,  is  negotiable  by  indorsement  and  delivery. 
It  is  in  conjunction  with  drafts  that  the  order  bill  finds  its  principal 
use.     An  explanation  will  be  given  in  a  later  paragraph. 

Description.  —  By  reference  to  the  preceding  cuts  it  will  be  noted 
that  the  following  are  the  more  important  elements  of  every  bill  of 
lading,  whether  order  or  straight : 


BILLS  OF  LADING 


111 


1.  Receipt  of  goods  and  a  descriptive  list  thereof;  giving  the 

number  of  packages,  weight,  and  classification. 

2.  Names  of  Shipper,  Consignee,  Carrier,  and  Shipping  Agent. 

3.  Place  and  destination  of  shipment,  together  with  date. 

4.  Freight  rates  and  other  charges  and  prepayments  thereof. 
Comparison  of  Straight  and  Order  Bill  of  Lading.  —  As  previously 

stated,  when  goods  are  shipped  "  straight,"  the  consignee  can  often 
obtain  the  goods  without  the  bill  of  lading,  and  then  refuse  to  pay 
the  bill ;  or  the  consignee  may  fail  to  claim  the  goods,  in  which  case, 
if  perishable,  they  may  become  valueless.  On  the  other  hand,  goods 
shipped  on  "order"  overcome  these  disadvantages  in  that  the  pur- 
chaser cannot  obtain  the  goods  until  the  amount  of  the  bill  has  been 
collected.  Where  the  goods  are  perishable,  an  utter  loss  can  be  pre- 
vented by  directions  to  the  holder  of  the  original  bill  to  sell  them 
in  open  market  if  the  consignee  does  not  claim  them  within  a  reason- 
able time.  Or,  if  the  goods  are  not  perishable,  the  railroad  may  be 
instructed  to  ship  the  goods  back  to  the  shipper. 

Disposition  of  Vouchers.  —  We  noted  above  that  the  Interstate 
Commerce  Commission  prescribed  three  vouchers  for  both  the  straight 
and  order  bills  of  lading.     These  vouchers  are  : 

1.  Original  Bill  of  Lading. 

2.  Slapping  Order. 

3.  Memorandum. 

These  are  disposed  of  as  follows :  The  shipping  clerk  of  the  ship- 
per makes  out  the  original  bill  of  lading,  at  the  same  time  making 
carbon  copies  of  the  shipping  order  and  memorandum  which  are 
identical  in  form  except  for  the  diiference  in  the  headings.  The 
original  is  sent  to  the  consignee,  the  shipping  order  is  retained  by 
the  railroad,  and  the  memorandum  is  held  by  the  shipper.  It  is  im- 
portant that  the  shipper  and  consignee  retain  their  vouchers  for 
reference,  to  verify  the  freight  bills  and  as  a  basis  for  later  entering 
claims  for  loss  if  necessary. 

"  Straight "  Bills.  —  The  use  of  straight  bills  of  lading  needs 
little  explanation.  On  delivery  of  the  goods  to  the  railroad  and 
proper  disposition  of  the  forms,  the  goods  are  simply  shipped  and 
received  by  the  consignee  without  any  further  procedure. 

Order  Bill  of  Lading  with  Draft  Attached.  —  However,  the  opera- 
tion of  an  order  bill  of  lading,  with  its  usual  accompaniment,  a  sight 
draft,  is  slightly  more  involved.     To  illustrate :    Suppose  that  Alton 


112     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


B.  Kirk,  of  Philadelphia,  is  sending  goods  to  James  Garvin,  a  mer- 
chant in  Chicago.  He  consigns  the  goods  to  himself  or  to  the  Third 
National  Bank  of  Chicago  (Order,  Notify  James  Garvin)  and  has  a 
bill  of  lading  made  out  where  they  are  shipped,  being  given  the 
original  order  bill  and  the  memorandum.  This  latter  he  retains,  but 
the  order  bill,  together  with  a  sight  draft  drawn  on  James  Garvin 
for  the  amount  of  the  bill,  he  takes  to  his  Philadelphia  bank.  They 
advance  the  amount,  giving  him  credit  for  it  at  once,  and  make  the 
collection  for  themselves ;  or  more  commonly  they  take  it  for  collec- 
tion, credit  him  with  the  amount,  and  charge  him  for  "  Collection  " 
after  the  collection  is  made.  The  bill  of  lading  gives  the  bank  title 
to  the  goods  until  they  are  paid  for.  The  Philadelphia  bank  then 
sends  the  draft,  with  the  bill  attached,  to  the  Third  National  Bank 
of  Chicago,  and  that  bank  attends  to  the  collection.  It  presents  the 
draft  to  James  Garvin  for  collection,  but  does  not  surrender  the  bill 
of  lading  to  him  (without  which  he  cannot  obtain  the  merchandise) 
until  the  draft  is  paid. 


CHAPTER   XVIII 


PARTNERSHIPS 


The  subject  of  Associations,  of  which  Partnership  is  a  part,  is  too 
comprehensive  a  branch  of  the  Law  for  us  to  investigate,  except  in 
a  most  limited  manner.  We  shall  therefore  restrict  our  discussion 
to  the  few  general  facts  in  so  far  as  they  are  necessary  to  an  intelli- 
gent examination  of  the  books  of  a  firm  composed  of  two  or  more 
members. 

The  Supreme  Court  of  the  State  of  Pennsylvania  has  approved 
the  following  definition: 

Definition.  —  "A  partnership  is  a  relation  created  by  contract 
between  two  or  more  persons  to  place  their  money,  effects,  labor,  or 
skill,  or  some  or  all  of  them  in  lawful  commerce  and  divide  the 
profits  between  them." 

Articles  of  Partnership.  —  The  written  instrument  effecting  such 
a  relation  is  familiarly  known  as  "Articles  of  Partnership,"  an 
agreement  of  the  parties  governed  by  the  general  law  of  Contracts. 
It  should  contain  the  following  essentials  with  such  additional  pro- 
visions as  the  peculiarities  of  the  undertaking  require : 

1.  Date. 

2.  Names  of  Parties. 

3.  Term  of  Partnership. 

4.  Purpose. 

6.  Recitation  of  Assets  pledged  (with  detailed  schedule  of  Assets 
attached).  Disposition  of  Liabilities  also  accompanied  by 
schedule.     Contribution  of  labor  or  skill. 

6.  Sharing  of  losses  and  division  of  profits. 

7.  Provision  in  case  of  impairment  of  capital. 

8.  Limitation  of  activities  of  the  partners. 

9.  Withdrawals  and  compensation  of  partners. 

10.  Firm's  name  and  address. 

11.  Limitations  as  to  partners'  signing  accommodation  paper  or 

bail  or  becoming  guarantors  or  sureties. 

12.  Proper  provision  for  the  signing  of  checks. 

113 


Tjui 

r  -I 


.  r 


i  i 


114    A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

13.  Length  of  the  fiscal  year  as  deciding  when  net  profits  are 

to  be  distributed. 

14.  Realization  and  Liquidation  in  the  event  of  dissolution  or 

failure. 

Kinds  of  Partnerships.     There  are  two  classes  of  Partnerships : 

1.  Common  Law. 

2.  Statutory. 

Liability  of  Partners.  —  The  difference  is  the  extent  of  liability  of 
the  partners,  ranging  from  unlimited  liability  in  the  case  of  the 
"Common  Law  Partnerships"  to  various  degrees  of  liability  in 
the  case  of  the  "  Statutory  Partnerships,"  which  are  regulated  by 
the  Acts  of  Legislature  of  the  state  wherein  they  are  created.  This 
liability,  generally  speaking,  consists  of  the  individual  responsibility 
of  each  of  the  partners  for  the  entire  indebtedness  for  the  firm,  and 
"  there  is  no  convenient  device  whereby  one  may  become  a  member 
of  the  ordinary  partnership  and  acquire  a  right  to  a  share  in  its  profits 
and  to  help  control  its  affairs,  without  assuming  an  ultimate  responsi- 
bility for  its  debts." 

Tests  of  Partnership.  —  Although  profit  sharing  is  an  excellent  in- 
dication of  the  character  of  the  association  of  individuals,  and  it  usu- 
ally follows  that  an  agreement  to  share  profits  is  an  earmark  of  an 
existing  partnership,  yet  it  does  not  necessarily  follow;  and  when  in 
doubt,  the  element  of  control  —  the  power  to  shape  the  destinies  of 
the  business  —  should  be  the  determining  factor.  Take,  for  instance, 
the  following  examples: 

A  leases  a  coal  mine  to  B,  agreeing  to  take  a  certain  amount  of 
coal  in  lieu  of  rent.  By  this  fact  alone  A  does  not  become  a  part- 
ner. 

Or,  again,  C  owns  a  steel  plant  employing  a  thousand  men  who  iii 
addition  to  their  wages  receive  a  share  of  the  net  profits.  They  do 
not  thereby  become  partners  of  the  business.  They  are  not  co-pro- 
prietors. 

On  the  other  hand,  it  is  a  well-recognized  rule  of  law  that  a  man 
may  not  have  any  of  the  usual  characteristics  of  a  partner ;  yet  if  he 
holds  himself  out  as  a  partner,  to  the  injury  of  innocent  third  parties, 
the  courts  may  hold  him  liable  on  the  failure  of  the  firm  with  which 
he  allowed  his  name  to  be  associated. 

Purposes  of  Partnerships.  —  The  formation  of  Partnerships  has  its 
advantages  in ; 


PARTNERSHIPS 


115 


L 


1.  The  concentration  of  capital  for  the  enlargement  of  business 

enterprise. 

2.  The  elimination  of  competition. 

3.  The  cooperation  of  men  of  widely  different  knowledge  and 

varying  degrees  of  wealth. 

Bookkeeping  Records  of  Partnerships. — Needless  to  say,  the  keep- 
ing of  books  of  a  partnership  is  in  no  wise  different  from  the  system 
of  accounting  we  have  been  considering,  other  than  the  fact  that 
separate  Personal  and  Capital  Accounts  are  kept  for  each  partner. 

The  Journal,  as  the  book  of  original  record,  should  show  the 
share  and  contributions  of  each  partner,  and  careful  record  should 
be  kept  of  all  subsequent  additions  in  cash  or  property.  Finally, 
proper  distinctions  should  be  made  between  withdrawals  for  salary 
and  withdrawals  of  anticipated  profits.  Whereas  the  former  is 
charged  to  an  expense  account,  the  latter  is  debited  directly  to  the 
Proprietor's  Personal  Account. 

Proprietor's  Personal  Account.  —  The  Personal  Account  of  the 
proprietor  of  the  business  is  subordinate  to  the  Capital  Account. 
It  has  for  its  purpose  the  reflecting  of  withdrawals  (except  salary) 
taken  by  the  Proprietor,  and  at  the  end  of  the  year  shows  the 
net  profit  or  loss. 

Its  purpose  is  to  keep  these  smaller  items  out  of  the  Capital 
Account,  which  represents  his  ownership  in  the  business. 

At  the  end  of  a  year  the  net  balance  of  the  Personal  Account 
may  be  closed  into  the  Capital  Account,  either  increasing  or  decreas- 
ing the  proprietor's  present  worth. 

Thus,  Alton  B.  Kirk  invests  $50000.00  in  a  business  which  is 
shown  in  his  Capital  Account.  He  is  to  take  $250.00  per  month 
for  salary. 

Alton  B.  Kirk,  Capital 


1913 

Jan. 

1 

50000 


00 


As  Kirk  takes  the  $250.00  for  salary  each  month,  the  entry  is : 
Expense  (or  salary)  $250.00 


Cash 


$250.00 


Mf 


116     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Suppose  at  the  end  of  a  month  Mr.  Kirk  does  not  need  the  money 
and  gives  instructions  that  it  is  to  be  credited  to  his  .account. 
This  is  recorded  by  the  entry : 


Expense  (or  salary^ 

Alton  B.  Kirk,  Personal 


»  250. 00 


i  250.00 


This  is  the  method  very  commonly  used,  the  entry  being  made 
monthly  or  weekly,  and  as  the  proprietor  needs  cash  he  draws  out 
what  he  needs  and  charges  it  to  his  Personal  Account. 

At  the  end  of  six  months,  Alton   H.   Kirk's  Personal  Account 
appears  as  follows : 

Alton  B.  Kirk,  Personal 


May 

1 

C 

1 

1200 

00 

Feb. 

J 

1 

250 

00 

June 

1 

800 

00 

Mar. 
Apr. 
May 
June 
July 

0 

3 
4 

6 

8 

250 
250 
250 
250 
250 

00 
00 
00 
00 
00 

Thus,  we  see  that  Kirk  has  drawn  more  than  his  salary,  which 
excess  may  be  looked  on  as  an  amount  he  is  going  to  repay  by  allow- 
ing his  salary  to  cancel  it;  or  it  can  be  regarded  as  anticipated 
profits  withdrawn,  as  it  is  considered  here. 

Suppose  the  Profit  and  Loss  Account  shows  a  profit  for  the  six 
months  of  f  1300. 00.  This  we  can  close  into  the  Personal  Account 
by  the  entry : 


Profit  and  Loss 

Alton  B.  Kirk,  Personal 


11300.00 


$1300.00 


After  posting  this  item  to  the  Personal  Account,  there  is  a  credit 
balance  of  $800.00,  showing  that  the  total  amount  withdrawn  by 
Kirk  is  iJ  800.00  less  than  the  sum  of  his  salary  and  profits  together. 
He  now  has  the  privilege  of  drawing  this  1800.00,  or  closing  it  into 
his  Capital  Account,  thereby  increasing  his  present  worth  ;  or  again, 
he  may  leave  this  balance  in  his  Personal  Account  to  cancel  subse- 
quent withdrawals. 

The  entries  for  the  first  two  instances  are : 


PARTNERSHIPS 


117 


1.  Alton  B.  Kirk,  Personal  1800.00 

Cash  8800.00 

2.  Alton  B.  Kirk,  Personal  $800.00 

Alton  B.  Kirk,  Capital  $800.00 

Closing  the  balance  of  Personal  Account  into  Capital  Account 
is  adopted  throughout  the  illustrations,  and  is  desired  in  the  prob- 
lems. 


CHAPTER  XIX 


A  BANK  ACCOUNT 


From  90  to  95  %  of  the  world's  business  is  done  on  credit  and 
by  means  of  credit  instruments,  largely  checks.  In  fact,  the  use  of 
checks  has  become  so  general,  and  is  such  a  convenience,  as  to  be  a 
necessity  to  even  the  smallest  business  man. 

Check  Account.  —  A  check  account,  or  bank  account,  is  the 
relation  an  individual  has  with  a  bank,  representing  that  he  deposits 
money  with  it,  and  has  the  privilege  of  drawing  checks  against  the 
money  so  deposited. 

Checks.  —  A  check  is  a  written  order,  signed  by  the  drawer, 
requesting  his  bank  to  pay  to  the  order  of  a  second  party  or  bearer 
a  certain  sum  of  money  on  demand. 

Advantages  of  a  Bank  Account.  —  The  advantages  obtained  by 
being  a  depositor  in  a  bank  are  as  follows  : 

1.  A  bank  is  a  safer  place  in  which  to  keep  money  than  a  safe 

or  a  cash  drawer. 

2.  It  permits  the  use  of  checks,  which  in  turn 
(a)  Facilitate  the  payment  of  bills. 

(6)  Act  as  receipts  for  the  bills  paid. 

3.  Provides  a  means   for  collecting  checks,  notes,  drafts,  etc., 

that  may  come  into  the  depositor's  possession. 

4.  The  bank,  knowing  the  depositor  to  have  a  good  account,  is 

more  apt  to  consider  a  loan  or  discount. 
Banks  are,  naturally,  careful  in  their  selection  of  depositors,  but 
they  are  always  ready  to  open  an  account  with  a  customer,  provided 
he  is  reputable  and  honest. 

How  to  open  a  Bank  Account.  —  The  procedure  in  opening  a 
bank  account  is  as  follows  : 
1.    To  be  introduced 

(a)  by  some  person  recognized  by  the  bank,  or 
(5)  by  another  depositor,  or 
(c)  by  an  officer  of  the  bank. 

118 


A  BANK  ACCOUNT 


119 


The  reason  for  the  introduction  is  that  the  banks  desire  only 
depositors  who  keep  a  desirable  balance  in  bank,  and  who  do  not 
overdraw  their  accounts  ;  and,  further,  they  want  to  know  the  de- 
positor's sponsor,  as  it  may  be  a  further  recommendation  in  case  he 
desires  to  borrow. 


DEPOSITED   WITH 
PRODUCE   NATIONAL  BANK 


2.  The  depositor  and  sponsor  must  sign  a  card,  giving  their 

addresses. 

This  is  for  the  A  Deposit  SUp 

bank's  rec- 
ords. 

3.  The  depositor  is 
also  requested 
to     sign     an- 

other card,  as 
a  record  for 
the  identifica- 
tion of  his 
signature  on 
checks  drawn 
in  the  future. 


The  "signature 
card"  is  kept  near  the 
paying  teller  in  the 
bank  for  reference  in 
case  of  a  doubtful  sig- 
nature. 

Assuming  that  the 
prospective  depositor 
has  been  accepted  by 
the  bank,  through  its 
officers  in  charge  (very 
often  the  cashier  or  an 
assistant  cashier),  he  is 
now  given  : 


By. 


Philadelphia, 


191 


Si)ecie 
Bills 


Checks,  as  follows  (enter 
singly). 

(If  in  city,  name  of  bank ; 
if  out  of  city,  name  of 
place  where  payable.) 


Total 


Dollars 


Cents 


1.  Deposit  Tickets. 

2.  Pass  Book. 

3.  Check  Book. 

4.  Coupon  Envelopes. 


:  I 


120     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Deposit  Slips.  —  The  deposit  tickets,  or  deposit  slips,  are  sheets 
specially  designed  by  banks  on  which  the  details  of  a  deposit  are 
listed.  An  illustration  of  a  deposit  slip  is  given  on  the  preceding 
page.  The  precise  form  used  by  one  bank  will  naturally  differ  from 
that  of  another,  but  the  general  divisions  are  the  same. 

Bank  Deposits.  —  In  making  a  deposit,  it  is  customary  to  place 
the  amount  of  money  in  coin  opposite  the  first  heading,  marked 
"Specie,"  and  the  amount  of  money  in  bills  opposite  the  second 
heading,  "  Bills." 

Next  comes  the  heading  "  Checks,"  under  which  each  check  is 
listed  separately,  city  checks  being  placed  first  on  the  list ;  and  the 


Back  of  Previous  Stub 


Stub  of  Page  Opposite 


j/f€?€? 


4^Z 


e4^isL 


-r^u  ^^^ 


(^^^ 


^tzcii^<,^/  ><i^^^^ 


©^ 


x^s 


J 


^-^-frf/.?>^^ 


\//^iAd^  >^^^^m-r^/ 


JZ<>o 


3ee 


\ 


name  of  the  bank  on  which  each  check  is  drawn  being  usually  given. 
After  the  city  checks  come  checks  drawn  on  banks  in  other  cities, 
which  are  designated  by  the  name  of  the  city  in  which  the  banks  are 
located.  Other  forms  of  deposit  slips  are  found  in  use,  but  the  prin- 
ciple is  identical  in  all. 


A  BANK  ACCOUNT 


121 


Pass  Book.  —  The  pass  book  is  a  receipt  book,  in  which,  when  a 
deposit  is  made,  the  receiving  teller  of  the  bank  records  the  date 
and  the  amount  of  the  deposit.  This  serves  as  a  receipt  to  the 
depositor.  Another  use  of  the  pass  book,  but  one  that  is  being  sup- 
planted, is  to  express  the  figures  of  the  bank  settlement.  The  de- 
posits are  added  when  the  book  is  left  for  settlement,  and  from  the 
total  are  subtracted  the  checks  which  have  been  honored  by  the 
bank.  These  checks  are  now  returned  to  the  depositor.  The  bal- 
ance represents  the  amount  which  the  bank  has  credited  to  the 
depositor's  account.  This  amount  does  not  necessarily  equal  the 
balance  shown  by  the  depositor's  check  book.     A  system  by  which 

Sample  Page  from  a  Check  Book 


l^UI</> 

j     Q< 
Izos 


!Z02 

i<     ^ 
I 


I    o< 
•zoz 

'P8F- 


^^^X- 


^^^J> 


^roliurr^ional^ank 


^y^^^^^  >^^,^»<,^*^.g.<q^ 


^=M^u< 


^jG&i 


Cil/r^yS^<!i:,Ji< 


^^^a^^^^^0^a^^^f^^ 


(^^^ZC^ 


^il/^^y(9.  y(^i^ 


the  bank  mails  monthly  to  the  depositor  a  statement  with  the  honored 
checks  inclosed  is  supplanting  the  use  of  the  pass  books  in  settle- 
ment. On  the  statement  are  shown  individual  deposits,  from  the 
total  of  which  the  sum  of  the  honored  checks  is  subtracted,  and  the 
balance  is  the  amount  then  on  deposit.     This  method  is  better  both 


122     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

for  the  depositor  and  the  hank,  since  the  depositor's  check  book  is 
balanced  at  least  monthly,  and  thus  his  account  is  kept  in  closer 
accord  with  the  bank's  record. 

Check  Book.  —  The  check  l)0()k  is  a  hook  given  by  the  bank  to 
a  depositor.  It  contains  a  number  of  blank  checks  with  correspond- 
ing stubs,  and  from  it  checks  are  issued  by  the  depositor,  and  a  dupli- 
cate record  of  each  check  kept  on  the  corresponding  stub. 

In  the  handling  of  a  check  book  great  care  should  be  taken,  and 
the  following  principles  should  be  observed  in  connection  with  each 
check  issued : 

1.  It  should  contain  the  date  on  which  it  was  issued. 

2.  It   should  contain  the  number  of  the  check  itself.      (Very 

important,  if  it  is  desired  to  stop  payment  on  a  check.) 

3.  It  should  be  drawn  to  the  order  of  the  party  desired  (payee), 

whose  name  should  be  carefully  spelled  to  prevent  the 
possibility  of  further  trouble.  It  is  common  for  checks 
to  be  drawn  to  "Cash,"  or  "  Bearer";  but  this  is  a  dan- 
gerous practice,  as  the  check  may  be  lost,  and  is  valid  in 
the  hands  of  the  finder. 

4.  The  amount  of  the  check  is  both  written  in  the  body  of  the 

check  and  placed  in  figures  in  the  corner.     Too  great  care 
cannot  be  taken  in   writing  in   the   amount.     It   should 
commence  at  the  extreme  left  of  the  check,  and    if   the 
entire  line  is  not  used,  the  balance  should  be  cancelled,  as 
by  the  lines  in  the  foregoing   illustrations.     This   is   to 
prevent  "  raising  "  by  the  payee  or  any  other  party  into 
whose   hands  the  check  may  fall ;  for  when  the  written 
amount   and  the  amount   written    in   figures   differ,   the 
written  amount  is  taken  as  correct. 
6.    The  signature  of  the  drawer  should  always  be  the  same,  as 
the   banks   will    refuse    payment    on    checks   improperly 
signed. 
Indorsement  of  Checks.  —  Checks,  like  other  negotiable  instru- 
ments, may    be  transferred  by  the  payee   to   any   other   party    by 
indorsement,  but  the  customary  indorsements  are  to   the  bank  of 
deposit  of  the  payee.     The  three  forms  which  follow  are  common 
for  such  indorsements: 

1.    Indorsement   in   blank,  being   merely  the   signature  of  the 
payee. 

Alton  B.  Kirk. 


A  BANK  ACCOUNT  123 

2.  Special  indorsement. 

Pay  to  the  order  of  the 
Commercial  National  Bank, 

Alton  B.  Kirk. 

3.  Or, 

For  deposit  only, 

Alton  B.  Kirk. 

Stubs  of  Check  Book.  —  As  shown  in  the  illustration  the  amount 
of  the  clieck  is  also  placed  on  its  corresponding  stub,  and  as  a  page 
of  the  book  is  used,  the  several  amounts  on  the  stub  are  added. 
This  amount  is  subtracted  from  the  sum  of  the  deposits,  which  have 
been  previously  listed  on  the  back  of  the  stub,  as  illustrated. 

Bank  Reconcilement.  —  When  there  is  a  bank  settlement,  either 
by  having  the  pass  book  settled  at  bank,  or  receiving  from  the  bank 
a  monthly  statement  of  the  account,  the  balance  as  shown  in  the 
check  book  should  be  immediately  compared  with  that  shown  by  the 
bank.     This  should  be  done  preferably  on  the  back  of  the  stubs  in 
the  check  book  opposite  the  day  of  settlement,  or  on  a  separate  sheet 
subsequently  to  be  pasted  in  the  check  book.     The  process   is   as    \^ 
follows :  First,  on  the  back  of  the  stub,  the  total  deposits  are  ascer- 
tained as  in  the  illustration,  $4800.42;  then  the  checks  are  totaled 
on  the  stub,  $1000.00.     The  bank's  settlement  is  now  examined  to 
see  if  any  interest  has  been  allowed,  and,  if  so,  this  is  added  to  the 
deposits.     At  the  same  time,  if  any  item  has  been  charged,  such  as     ( 
for  the  collection  on  notes  or  drafts,  or  interest  on  loans,  etc.,  it  is     ', 
added  to  the  total  of  the  checks  issued.     To  continue  the  illustration, 
suppose  f  25.00  has  been  allowed  by  the  bank  for  interest  on  deposit, 
and  #75.00  interest  on  a  loan  to  the  depositor  has  been  deducted. 
To  the  $25.00  interest  is  added  the   amount  of   deposits,  making 
$4825.42,  and  the  $75.00  is  added  to  the  total  of  checks  issued, 
making  $1075.00.     The  difference  between  these  two  is  the  check     ( 
book  balance,  which  seemingly  should  equal  the  balance  shown  by 
the  bank;  this,  however,  is  seldom  true,  particularly  where  a  number 
of  checks  have  been  issued  just  prior  to  settlement.     It   must  be    ' 
remembered  that  in  balancing  the  check-^book,  every  check  issued  to 
the  date  of  the  settlement  has  been  deducted,  while  naturally  the     ' 
bank  has  counted  only  the   checks  presented   to   it   for   payment. 
Hence,  if  there  are  still  any  checks  unpaid,  the  sum  of  such  unpaid 
checks  is  the  difference  between  the  two  balances,  and,  as  in  the 
check  book  balance  these  unpaid  checks  have  been  deducted,  and,  as    / 


124     A  FIRST  YEAR  IN  BOOKKEEPLXG  AXD  ACCOUNTING 

they  have  not  been  in  the  bank  balance,  this  figure  is  necessaril)^ 
greater  than  the  cheek  book  balance  by  that  amount.  To  prove 
this,  the  checks  returned  by  the  bank  are  numerically  arranged  and 
compared  with  the  stubs  of  the  check  book  to  see  if  any  are  missing. 
Such  missing  checks  are  listed  with  the  number  and  amount  of  each 
and  totaled.  This  total  is  now  subtracted  from  the  bank  balance, 
and  the  result  is  equal  to  the  check  book  balance. 
To  continue  our  illustration  : 

Deposits 
Interest  to  7/3/13 


Less 

Total  checks 

$1000.00 
and 

Int.  on 

loan  75.00 

Balance 
The  bank  shows  a  balance  of 

A  list  of  the  checks  outstanding  shows : 

Check  No.  223 
Check  No.  236 
Check  No.  237 
Check  No.  251 
Check  No.  253 

The  check  book  balance,  therefore,  is 


$  4800.42 
25.00 
1^4825.42 


A  BANK  ACCOUNT 


125 


1075.00 


i  3750.42 


$4200.42 


i  100.00 

50.00 

75.00 

25.00 

200.00 

$450.00         450.00 

$3750.42 


INCLOSE  BUT  ONE  KIND  OF  COUPON   HEREIN 


Coupon  Envelopes.  —A  coupon  envelope,  given  a  depositor  by 
a  bank,  is  merely  a  small  printed  envelope  in  which  to  place  coupons 
when  making  deposits. 

A  coupon  is  an  interest  note  attached  to  a  bond,  and  when  the 
interest  is  due,  it  is  clipped  from  the  bond  and  deposited,  and  later 
collected  by  the  bank  from  the  corporation  issuing  the  bond. 

An  illustration  of  a  coupon  envelope  is  shown  on  the  opposite 

page. 

PROBLEM  36 

Bank  Reconcilement 

On   Aug.   31,   J.  M.   Willis'  check  book  reveals  a  balance  of 

$10346.61. 

In  comparing  his  balance  with  that  shown  by  the  bank,  Willis  dis- 
covers that  he  failed  to  record  a  deposit  of  1760.39  on  Aug.  20, 
and  that  a  check  issued  on  Aug.  29  to  the  amount  of  $48.76  had 
been  listed  on  the  stub  as  $47.76.  In  addition,  the  bank  has  given 
him  180.36  interest,  on  deposits,  and  this  amount  has  not  as  yet  been 
entered  by  him  in  his  check  book. 

The  bank's  settlement  presents  Willis'  balance  as  being 
$12386.46. 

What  is  the  total  of  the  checks  drawn  by  Mr.  Willis  which  have 
not  as  yet  been  presented  to  the  bank  for  payment  ? 


CHAPTER   XX 

SHIPMENTS  AND  CONSIGNMENTS 

Very  often  the  business  man  in  looking  over  the  markets  in 
which  to  dispose  of  his  goods  finds  that  markets  far  removed  from 
his  field  of  business  offer  far  better  prices.  If  the  margin  of  profit 
in  the  local  market  is  small,  and  if  the  other  markets  offer  better 
inducements  than  his,  it  is  but  natural  that  he  consider  the  sale  of 
his  goods  at  the  place  where  they  will  bring  the  greatest  return. 

On  the  other  hand,  there  are  certain  classes  of  men  who  seldom 
desire  to  sell  their  goods  outright  at  wholesale  prices,  but  who  pre- 
fer to  place  their  goods  for  sale  at  the  market  offering  the  greatest 
return  and  to  take  the  chance  of  greater  profits.  Many  farmers  in 
disposing  of  their  products  act  in  this  manner.  To  either  or  both 
of  the  above  classes  of  men  the  shipment  on  account  is  possible. 

Definitioii.  —  A  shipment  is  a  quantity  of  goods  sent  by  one 
business  house  to  another,  not  as  a  sale,  but  to  be  sold  for  the 
account  of  the  shipper.  When  regarded  from  the  point  of  view  of 
the  receiver  of  the  goods,  the  shipment  is  called  a  consignment. 

Thus  we  see  that  shipments  and  consignments  are  identical,  the 
distinction  being  the  standpoint  from  which  they  are  regarded. 

The  definition  also  brings  out  the  fact  that  shipments  and  con- 
signments are  not  sales  and  purchases,  and  that  title  to  the  goods 
remains  in  the  shipper  until  sold,  the  receiver  (consignee)  acting 
merely  as  his  agent.  The  question  may  be  raised  as  to  how  a  local 
dealer  knows  the  current  prices  in  otiier  markets.  He  has  several 
sources  of  information  in  the  trade  papers  and  journals  and  through 
daily  market  reports  issued  by  the  larger  liouses  and  distributed  to 
customers  and  producers  who  ship  on  account.  Thus,  if  a  man  has 
goods  for  sale  in  a  local  market  and  is  not  satisfied  with  prices,  he 
has  the  option  of  storing  his  goods  and  waiting  for  better  local 
prices,  or  shipping  them  to  better  markets.  To  store  his  goods 
means  expense  and  the  loss  of  so  much  capital  while  the  goods  are 
stored,  unless  he  has  his  own  warehouse,  so  the  results  of  either  plan 
must  be  measured.    If  the  man  decides  to  ship  on  account,  he  chooses 

126 


SHIPMENTS  AND  CONSIGNMENTS 


127 


a  consignee  whose  reputation  is  unquestioned  and  who  has  good 
business  ability.  Such  a  consignee  is  found  either  from  satisfactory 
shipments  made  to  him  previously,  from  inquiry  within  the  trade,  or 
from  the  commercial  agencies,  from  whom  a  report  on  his  capital  and 
credit  standing  may  be  obtained. 

Since  the  consignee  is  but  the  agent  of  the  shipper  and  does  not 
own  the  goods,  and  since  the  ownership  remains  with  the  shipper, 
the  consignee  cannot  be  held  responsible  for  any  definite  value  until 
he  has  sold  the  goods  to  a  third  party.  After  such  a  sale  the  shipper 
cannot  recover  the  goods,  but  he  can  hold  the  consignee  responsible 
for  their  value.  Hence,  any  goods  out  on  shipment  are  to  be  con- 
sidered a  part  of  the  inventory  of  the  shipper  until  such  time  as  he 
knows  the  consignee  has  sold  them  and  has  thus  become  responsible. 

Shipments 

Shipment  Memorandum.  —  When  a  quantity  of  goods  is  sent  out 
as  a  shipment,  notice  must  be  sent  to  the  consignee.  This  notice 
takes  the  form  of  a  letter  or  a  regular  "  Shipment  Memo."  blank  ; 
but  either  form  may  be  used,  provided  such  notice  contains  the 
following: 

1.  Date  of  Shipment. 

2.  Quantity  and  description  of  Shipment. 

3.  Instructions  as  to  methods  of  selling. 

4.  For  whose  account  Shipment  is  to  be  sold. 

The  date,  the  quantity,  and  description  are  essential,  so  that  the 
consignee  may  know  when  to  expect  the  goods,  etc.;  for  in  the 
event  of  their  being  a  standard  grade,  he  may  sell  them  before 
arrival.  The  instructions  as  to  selling  may  be  omitted,  in  which 
case  the  consignee  sells  at  the  best  possible  price.  The  cost  price 
to  the  shipper  may  be  mentioned  merely  to  give  the  consignee  an 
idea  of  the  price  he  must  ask  in  order  to  yield  a  profit ;  or  the  shipper 
may  give  a  minimum  price,  below  which  the  consignee  is  not  to  sell. 
Naturally  the  name  of  the  shipper  must  be  given. 

Upon  receipt  of  the  goods,  in  order  to  prevent  any  liability  on 
his  part  due  to  negligence,  the  consignee  must  take  ordinary  care 
of  the  goods.  This  may  include  counting,  storing,  and  insuring 
them.  It  is  to  his  advantage  to  obtain  the  highest  possible  price 
for  the  goods,  as  his  return  is  a  commission,  usually  taken  on  the 
gross  amount  of  sales. 


I 
I 


128    A  FIRST  YEAR  IN 


'KKEEPING  AND  ACCOUNTING 


Commission.  —  Commission  is  an  allowance  paid  to  an  agent  as 
his  return  for  conducting  a  business  transaction.  It  is  usually  a 
percentage  of  the  total  value  of  the  transaction. 

A  consignee  must  keep  a  separate  record  of  each  consignment, 
as  in  making  return  he  will  have  to  show  the  sales  and  expenses, 
which  in  addition  to  his  commission  may  include  labor,  cartage, 
freight,  storage,  insurance,  etc.  When  a  consignment  has  been  sold, 
the  consignee  makes  out  what  is  known  as  an  account  sales  and 
sends  it  to  the  shipper. 

Account  Sales.  —  An  account  sales  is  a  statement  of  the  sale  or 
disposition  of  a  particular  shipment,  giving  details  of  sales  and  ex- 
penses made  out  by  a  consignee  and  sent  to  the  shipper. 

Consignees  usually  have  an  "  Account  Sales  Book  "  consisting  of 
two  copies,  the  original  account  sales,  and  a  stub  for  each.  It  is 
customary  for  them  to  contain  the  following  : 

1.  The  total  goods  received. 

2.  The  details  of  sales. 

3.  The  details  of  charges  and  expenses. 

4.  The  terms  of  settlement : 
(a)  by  check. 

(ft)  by  note  or  draft. 

(c)  proceeds  due  in  30  or  60  days,  etc. 

Thus  the  account  sales  gives  the  shipper  a  complete  history  of 
his  shipment  from  the  time  the  consignee  receives  it  to  the  time  it 
is  sold,  and,  further,  gives  him  a  list  of  all  charges  aud  expenses. 
By  the  "  terms  of  settlement "  is  meant  the  manner  in  which  the 
consignee  is  to  remit  the  proceeds.  If  he  sells  the  goods  for  cash,  he 
sends  his  check.  Since  he  usually  sells  to  his  own  customers  and 
has  to  await  payment  from  them  for  30  or  60  days,  he  may  send 
the  shipper  his  note  or  merely  state  that  the  proceeds  will  follow  in 
a  given  number  of  days. 

When  the  consignee  forwards  an  account  sales  to  the  shipper,  he 
acknowledges  the  sale  of  the  goods  and  his  liability  to  the  shipper. 
If  he  does  not  satisfy  this  liability  at  the  same  time  by  sending  his 
check  or  note,  he  must  open  an  account  with  the  shipper,  who  is 
now  a  creditor;  and  the  shipper  on  receipt  of  the  account  sales 
must  open  an  account  with  the  consignee,  who  is  now  a  debtor. 

In  practice  the  consignee  seldom  awaits  the  sending  of  the  account 
sales  to  the  shipper  to  notify  him  of  the  sale  of  his  goods,  but  upon 


SHIPMENTS  AND  CONSIGNMENTS 


Account  Sales 


129 


No. 


Of  Merchandise  Received 

dltan  IS.  /Clvk 


fidy  2,  f^/3. 


From. 


To  be  sold  on  Commission  by. 


^a/y)ve^  ^oAA^-vn, 


Date 


DMcription 


500  bx.  Oranges 


@  $2.80 


Remarks 


Settled :  Check  herewith 


Freight 

Drayage 

Commission 

Storage 

Insurance 

Advertising 

Cooperage 


40 

10 

140 

10 


♦  In  red  ink. 


00 
00 
00 
00 


Amount 


1400 


1400 


200 


1200 


00 


00 


00 


00* 


/ 


I 


130     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

the  sale  of  all,  or  a  part,  writes  or  telegraphs  a  record  of  such  sale. 
This  is  particularly  true  when  the  sale  has  been  made  at  a  favorable 
sum  and  the  consignee  desires  to  please  the  shipper  in  order  that  he 
may  receive  further  consignments.  Selling  on  commission  is  profit- 
able to  the  consignee,  as  he  has  no  capital  represented  in  the  goods, 
stands  no  chance  of  losing,  and  will  make  his  commission  even 
though  the  shipper  lose  considerable  money. 

Recording  of  Shipments  on  the  Books.  —  We  shall  consider  two 
methods  of  recording  shipments.  In  the  first  we  shall  use  a  Ship- 
ment Account.  Since  the  goods  are  not  sold,  we  cannot  debit  the 
consignee,  and  furthermore  we  do  not  know  the  amount  with  which 
to  charge  him  until  we  have  received  the  account  sales.  In  order, 
then,  to  avoid  this  difficulty,  and  at  the  same  time  show  a  shipment 
on  the  books,  we  debit  an  account  called  "  Shipment "  (to  the  par- 
ticular consignee). 

Illustration.  —  On  July  1,  Alton  B.  Kirk  shipped  to  James  Garvin 
500  boxes  of  oranges,  costing  him  $2.00  per  box.  The  entry  for 
this  in  the  Sales  Book  is  as  follows  : 

Sales  Book 

July  1,  1913 


Shipment  to  James  Garvin  ^1 


1000 


00 


Thus,  Shipment  Account  assumes  the  responsibility  for  the  goods, 
and  it  is  seen  that  the  account  also  contains  the  name  of  the  con- 
signee, showing  who  has  custody  of  the  goods.  This  particular 
account  is  also  designated  '^  #  1,"  since  every  shipment,  even  those 
to  the  same  consignee,  has  a  separate  account,  in  order  to  show  the 
profit  or  loss  on  each. 

To  continue :  On  the  same  day  Mr.  Kirk  has  to  pay  *50.00  for 
carting  this  shipment  of  oranges  to  the  depot.  The  entry  for  this, 
on  the  credit  side  of  the  Cash  Book,  is  as  follows  : 


Shipment  to  James  Garvin  jf  1 
Cash 


$50.00 


$50.00 


SHIPMENTS  AND  CONSIGNMENTS 


131 


(The  above  Cash  Book  entry  is  given  in  the  form  of  a  Journal 
entry  to  bring  out  more  clearly  the  debit  and  credit.) 

Thus,  a  shipment  is  charged  with  its  expenses. 

On  July  10  an  account  sales  is  received  from  James  Garvin  show- 
ing net  proceeds  of  $1200.00  after  all  his  expenses  and  charges  have 
been  deducted. 

(1)  If  a  check  is  received  with  the  account  sales,  the  Cash  Book 

entry  is : 

Cash  $1200.00 

Shipment  to  James  Garvin  #  1  $1200.00 

(2)  If  a  note  is  received,  the  Journal  entry  is : 

Notes  Receivable  $1200.00 

Shipment  to  James  Garvin  #  1  $1200.00 

(3)  If  the  account  sales  merely  states,  "  Proceeds  to  follow  in  30 

or  60  days,"  the  Journal  entry  is : 

James  Garvin  $1200.00 

Shipment  to  James  Garvin  #  1  $1200.00 

This  last  entry  is  made  to  register  against  James  Garvin  the 
$1200.00  for  which  he  is  responsible.  This  debt  is  acknowledged 
in  the  account  sales,  although  a  written  acknowledgment  in  this  form 
is  never  considered  a  note. 

If  any  one  of  the  three  methods  of  making  settlement  is  used,  the 
Shipment  Account  is  closed,  as  upon  the  receipt  of  the  account  sales 
we  either  receive  payment  or  know  positively  the  amount  the  con- 
signee owes. 

The  Shipment  Account  now  appears : 

Shipment  to  James  Garvin  §1 


1918 

1913 

July 

1 
1 

S 
C 

1000 
50 

00 
00 

July 

10 

C 

1200 

00 

This  shows  that  the  shipment  cost  $1050.00  and  produced 
$1200.00 ;  hence  a  gain  of  $  150.00  is  to  be  taken  to  Profit  and  Loss 
Account  in  closing. 


132     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Shipments  not  Returned.  —  On  the  other  hand,  if  at  the  time  of 
closing  the  books,  no  return  or  account  sales  has  been  received  for 
a  shipment,  it  must  not  be  considered  a  loss.  Such  a  shipment  must 
be  considered  an  asset,  as  the  goods  still  belong  to  the  shipper  and 
should  be  counted  a  part  of  his  inventory. 

Rules  for  First  Method.  —  We  can  now  reduce  this  system  to 
the  following  two  rules  : 

1.  Charge  the  shipment  with  the  cost  of  the  goods  and  all  ex- 

penses incidental  to  making  the  shipment. 

2.  Credit  the  shipment  upon  receipt  of  the  account  sales  and 

debit  Cash,  Notes  Receivable,  or  the  consignee,  according 
to  the  return  made. 

Objections  to  First  Method.  —  This  method  of  handling  shipments 
has  several  important  objections.  It  records  the  shipment  in  the 
Sales  Book  at  a  time  when  it  is  not  a  sale,  thus  improperly  increas- 
ing the  sales  of  a  certain  period,  and  recording  the  sale  at  the  cost 
price,  when  the  proceeds  from  the  shipment  is  the  real  sale  price. 
Further,  a  shipment  not  accounted  for  is  still  the  property  of  the 
shipper,  and  should  be  counted  as  a  part  of  his  inventory,  a  plan 
which  cannot  be  followed  in  this  method. 

Second  Method.  —  A  system  which  overcomes  these  objections 
and  which  at  the  same  time  is  more  comprehensive  and  generally 
applicable,  is  one  which  requires  an  auxiliary  book  known  as  the 
"Shipment  Book"  or  "Shipment  Ledger."  Its  form  is  greatly 
varied,  but  it  is  sufficient  if  it  includes  the  quantities  and  values  of 
goods  shipped  and  all  expenses  paid  by  the  shipper.  It  is  usually 
a  loose  leaf  book  so  that  shipments  accounted  for  may  be  taken  out 
and  tiled.  When  a  shipment  is  sent  out,  no  entry  is  made  on  the 
regular  books,  but  all  the  necessary  information  is  registered  on  a 
separate  page  of  the  Shipment  Ledger. 

Expenses,  such  as  prepaid  freight,  cartage,  etc.,  are  charged  direct 
to  Merchandise  or  to  Cartage  or  Freight  in  the  Cash  Book,  and  a 
memorandum  is  made  in  the  Shipment  Ledger.  Only  upon  the  re- 
ceipt of  the  account  sales  are  the  goods  considered  sold,  and  an  entry 
is  made  in  the  Sales  Book,  debiting  the  consignee  and  crediting 
Merchandise.  If  the  consignee  has  sent  his  check  or  a  note  with 
the  account  sales,  a  Cash  Book  or  Journal  entry  is  immediately 
made,  debiting  Cash  or  Notes  Receivable  and  crediting  the  con- 
signee. 

We  now  turn  to  the  Shipment  Ledger,  and  on  the  page  represent- 


SHIPMENTS  AND  CONSIGNMENTS 


133 


ing  the  shipment  we  register  the  amount  of  the  proceeds,  figure  the 
profit  or  loss,  take  the  page  out  of  the  book,  and  file  for  future 
reference.  The  profit  or  loss  so  figured  is  purely  auxiliary  and 
does  not  affect  our  regular  books,  as  the  profit  there  is  registered 
through  the  credit  to  Merchandise  in  the  Sales  Book. 

This  system  not  only  permits  of  unlimited  shipments  being  easily 
handled,  but  it  overcomes  the  objection  to  the  first  method.  It 
further  saves  our  regular  Ledger  from  being  flooded  with  various 
Shipment  Accounts. 

Illustration.  —  To  illustrate  by  the  transactions  previously  taken : 

1.  When  the  goods  are  shipped  to  James  Garvin,  the  only  record 
made  is  in  the  Shipment  Ledger. 

Upon  the  payment  of  $50.00  cash  for  carting  the  goods  a  Cash 
Book  entry  is  made,  debiting  Merchandise  or  Cartage  and  crediting 
Cash,  and  a  memorandum  is  made  in  the  Shipment  Ledger. 

When  the  Account  Sales  for  $1200.00  is  received,  a  Sales  Book 
entry  is  made,  debiting  James  Garvin  for  the  merchandise  sold. 
If  cash  or  a  note  is  received  at  the  same  time,  James  Garvin's 
Account  is  immediately  closed  by  debiting  Cash  or  Notes  Receivable, 
and  crediting  James  Garvin. 

This  method  is  even  simpler  than  the  first.  It  keeps  an  adequate 
record  through  the  auxiliary  Shipment  Ledger  of  what  goods  are  out 
on  shipment  and  of  the  various  consignees.  Furthermore,  in  taking 
an  inventory,  in  addition  to  the  goods  actually  on  hand,  reference  is 
had  to  the  amount  in  the  Shipment  Ledger,  thereby  revealing  the 
true  amount  of  inventory. 

The  following  illustration  shows  a  page  of  the  Shipment  Ledger : 


Alton  B.  Kirk  Company 


Kg. 


Shipped  to 


James  Garvin, 
Via  P.  R.R.,  Car  71245  Chicago,  111. 


July  1,  1913. 


July 


10 


500  bu.  Potatoes 


Account  Sales 


•  In  red  ink. 


Packing 
Cartage 
Freight 
Gain* 


@$.60 


300 

00 

15 

00 

75 

00 

110 

00* 

500 

500 

00 

500 

1 

00 


00 


I 


I 


134     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Consignments 

Handling  of  Consignments.  —  Upon  receipt  of  a  consignment  a 
consignee  makes  no  entry  upon  his  principal  books,  as  he  may  not 
know  the  value  of  the  goods  and  would  have  no  amounts  for  an 
entry.  He  records,  however,  tlie  receipt  of  the  goods  upon  a  stub 
in  the  Account  Sales  Book,  from  which  he  eventually  sends  an 
account  sales  to  the  shipper. 

Any  expenditures  he  may  have  for  this  consignment,  such  as 
special  labor,  insurance,  storage,  cooperage  of  barrels,  etc.,  he 
charges  direct  to  the  consignment,  thereby  o{)ening  an  account  in 
the  Ledger  for  each  consignment.  When  the  goods  are  sold,  the 
consignee  debits  cash ;  or  if  sold  on  account,  he  debits  the  pur- 
chaser and  credits  the  consignment. 

After  the  goods  are  sold  the  consignee  takes  his  return  (commis- 
sion) by  reducing  the  credit  balance  of  the  Consignment  Account, 
debiting  the  consignment  with  a  percentage  of  the  gross  sales,  and 
crediting  Commission,  a  nominal  account  (a  gain  in  this  case). 

The  Consignment  Account  is  now  debited  with  all  expenses,  in- 
cluding the  commission,  and  credited  with  the  selling  price.  The 
balance  must  be  the  amount  due  the  shipper  (consignor). 

Illustration.  —  Henry  Brown  ships  to  Alton  B.  Kirk  400  boxes  of 
oranges  to  be  sold  for  his  account. 

Alton  B.  Kirk,  upon  receipt  of  the  goods,  makes  the  record  only 
upon  the  stub  of  his  Account  Sales  Book.  He  stores  the  oranges 
for  a  week,  paying  $16.00  to  the  Storage  Co.,  the  entry  in  the  Cash 
Book  being : 


Henry  Brown's  Consignment  ^  1 
Cash 


$16.00 

1116.00 

The  oranges  are  sold  at  $4.00  per  box.     If  sold  for  cash,  the 
entry  in  the  Cash  Book  is : 

Cash  $1600.00 

Henry  Brown's  Consignment  #  1  $1600.00 

If  sold  on  account,  the  entry  in  the  Journal  is : 

The  Purchaser  $1600.00 

Henry  Brown's  Consignment  #  1  $1600.00 

As  the  goods  are  all  sold,  Alton  B.  Kirk  can  take  his  commission  of 
10  %.     The  entry  in  the  Journal  is  : 


SHIPMENTS  AND  CONSIGNMENTS 


135 


Henry  Brown's  Consignment  §  1 
Commission 


$160.00 


$160.00 


An  analysis  of  the  last  two  entries  clearly  illustrates  how  Com- 
mission Account  in  this  case  is  a  gain.  The  first  entry,  by  crediting 
Consignment  Account  with  the  sale,  creates  a  liability  or  debt  to 
this  account;  and  the  second  entry,  by  debiting  the  Consignment 
Account  with  $160.00,  reduces  the  debt  to  that  extent,  and  hence 
is  a  gain,  expressed  through  the  credit  entry  to  Commission. 

The  Consignment  Account  in  the  Ledger  now  appears : 

Heniy  Brown's  Consignment  §1 


1918 

1918 

July 

1 

9 

Storage. 
Commission 

16 
160 

QO 
00 

July 

9 

Sales 

1600 

00 

The  balance,  $1424.00,  represents  a  debt  to  Henry  Brown,  and 
if  liquidated  immediately,  the  entry  in  the  Cash  Book  is  : 

Henry  Brown's  Consignment  #1  $1424.00 

Cash  $1424.00 

If  not  liquidated  at  once,  but  an  account  sales  is  rendered,  stating 
that  the  proceeds  will  follow  in  30  days,  the  entry  in  the  Journal  is  : 

Henry  Brown's  Consignment  #1  $1424.00 

Henry  Brown  $1424.00 

This  is  a  positive  debt  of  the  amount  due  Henry  Brown  as 
acknowledged  in  the, account  sales. 

At  the  time  either  of  the  last  two  entries  is  made,  Alton  B. 
Kirk  completes  the  stub  and  original  in  his  Account  Sales  Books, 
detaches  the  latter,  and  forwards  it  to  the  consignor,  Henry  Brown. 
We  may  now  formulate  two  rules  for  the  handling  of  consignments, 
as  follows: 

RULES 

1.  Debit  the  consignment  with  all  expenses,  commission,  and 

the  net  proceeds. 

2.  Credit  the  consignment  with  the  amount  of  sales. 


I 


CHAPTER  XXI 

DEPRECIATION,  RESERVES,  AND  ACCRUALS 

The  assertion  was  made  before  that  though  the  Trial  Balance  is 
a  basis  of  the  Six-Column  Statement,  yet  being  but  a  reflex  of  the 
Ledger,  it  is  insufficient  in  determining  the  present  worth  or  profits 
or  losses  of  a  business.  It  is  necessary  to  have  recourse  to  certain 
"supplementary  facts"  not  to  be  found  in  the  books  themselves. 
The  only  "  supplementary  fact "  with  which  we  have  dealt  to  date 
has  been  the  inventory  of  merchandise.  This  we  have  seen  to  be 
the  actual  value  taken  at  the  cost  price  of  the  merchandise  on  hand. 
Likewise,  the  actual  value  is  taken  of  any  of  the  assets  of  our  busi- 
ness; and  it  is  by  means  of  the  Depreciation,  Reserve,  and  Accrual 
Accounts  that  the  true  "  worth  "  of  a  business  is  correctly  ascertained 
and  recorded  in  the  books. 

Depreciation 

Definitioii  of  Depreciation.  —  Depreciation  may  be  said  to  be  the 

shrinkage  in  the  value  of  an  asset  as  a  result  of  its  use  and  enjoyment. 

Causes  of  Depreciation.  —  This  depreciation  in  an  asset  may  be 

caused  by: 

1.  Its  use.     (The  operation  of  a  machine.) 

2.  Mere  lapse  of  time. 

3.  Replacement  because  of  having  outlived  its  usefulness. 

4.  Natural  causes,  such  as  fire  and  flood. 

It  stands  to  reason  that  it  is  short-sighted  on  the  part  of  the 
proprietor  to  consider  his  assets  of  stable  value,  and  so  list  them,  for 
there  comes  a  day  of  reckoning  when  certain  assets  must  of  necessity 
wear  out  and  become  utterly  valueless  so  as  to  make  it  imperative 
that  they  be  replaced.  This  may  require  the  outlay  of  considerable 
cash  in  perhaps  an  already  poor  year,  so  that  the  books  for  that 
period,  instead  of  showing  a  profit,  may  show  a  loss.  The  goal  con- 
stantly striven  for  in  modern  business  is  to  have  the  books  show  a 
rising  scale  of  profits,  instead  of  reaching  the  summits  of  prosperity 

136 


DEPRECIATION,  RESERVES,  AND  ACCRUALS 


137 


one  year  and  dropping  to  the  depths  of  financial  embarrassment  the 
next.  For  this  reason  a  management  familiar  with  Recounts  and  the 
story  they  tell  insists  that  depreciation  of  assets  be  considered  every 
fiscal  period,  in  order  that  the  inevitable  loss  of  the  asset  (if  it  be  of 
a  destructible  nature)  be  allocated  over  a  period  of  years  approxi- 
mating the  expected  life  of  the  asset,  rather  than  burden  any  one 
year  with  the  entire  cost. 

Methods  of  Determining  Depreciation. — There  are  several  meth- 
ods of  determining  the  annual  amount  of  depreciation,  but  for  our 
purposes  the  following  is  sufficient. 

Take  for  example  a  machine  costing  f  1000.00,  which,  by  taking 
into  consideration  its  proper  maintenance  and  repair,  will  be  worth- 
less at  the  end  of  ten  years.  The  depreciation  can  then  be  computed 
on  a  10  %  basis  for  ten  years.  Our  entry  on  closing  the  books  for 
the  first  year  is : 

Depreciation  of  Machinery  $100.00 

Machinery  $100.00 

Depreciation  charged  to  Machinery 

"Depreciation  of  Machinery"  is  a  nominal  account  explaining 
the  decrease  in  value  of  an  asset,  and  is  debited  because  it  is  respon- 
sible for  such  loss. 

It  is  sometimes  customary  to  open  a  general  "  Depreciation  Ac- 
count "  instead  of  a  separate  one  for  each  asset.  In  that  event  all 
depreciations  are  charged  to  this  one  account,  and  the  various  assets 
are  credited  for  the  respective  amounts. 

These  accounts  would  in  turn  be  closed  into  Profit  and  Loss  in 
each  instance ;  thus : 

Profit  and  Loss  $100.00 

Depreciation  of  Machinery  $100.00 

or 

Profit  and  Loss  $  100. 00 

Depreciation  $  100. 00 

After  posting  the  Machinery  Account  in  the  Ledger,  it  appears 
as  follows : 

Machinery 


1000 


00 


Balance 


*  In  red  ink. 


100 
900 


00 
00 


138     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

The  true  value  of  the  machine  thus  appears  in  the  account  and 

on  the  Balance  Sheet.     At  the  end  of  the  second  year  the  account 

stands :  »,    ,  . 

Machinery 


1000 


1000 


900 


900 


800 


00 


00 


00 


00 


00 


Balance  ♦ 


Balance  ♦ 


•  In  red  ink. 


100 
900 


1000 


100 

800 


900 


00 
00* 


00 


00 

00^ 

00 


While  this  is  a  possible  method  of  recording  depreciation,  it  is 
not  well  favored,  as  "  writing  down  "  assets  is  not  considered  good 
accounting  practice.  There  are  occasions  when  it  is  important  that 
the  cost  of  an  asset  should  appear  as  the  balance  of  the  account ;  as, 
for  instance,  in  the  case  of  an  adjustment  for  a  fire  loss.  How  then 
shall  we  consider  this  depreciation  on  our  books  ?  The  answer  is 
found  in  the  "  Reserve  "  Accounts  which  we  shall  now  discuss. 

Reserves 

Definitioii.  —  A  Reserve  Account  is  a  financial  account  with  a 
credit  balance  (a  liability)  created  on  the  books  for  the  purpose  of 
reducing  the  value  of  an  asset.  Tims,  it  is  but  an  application  of  the 
principle  that  to  subtract  in  bookkeeping  we  may  accomplish  the 
result  by  adding  the  amount  to  be  subtracted  to  the  opposite  side  of 
that  or  another  account.     Thus,  in  the  case  above,  instead  of  : 


Depreciation  of  Machinery 

Machinery 


Depreciation 

Machinery 

with  the  resulting  account : 


or 


$100.00 


f  100.00 


$100.00 


$100.00 


Machinery 


1000 

00 

00 
00 

1000 

900 

Balance  ♦ 


*  In  red  ink. 


DEPRECIATION,  RESERVES,  AND  ACCRUALS 


139 


We  may  now  have 

Depreciation  of  Machinery  $100.00 

Reserve  for  Depreciation  1 
of  Machinery  J 

or 
Depreciation  $100.00 

Reserve  for  Depreciation 

This  leaves  our  Machinery  Account  unaffected. 

Machinery 


$100.00 


$100.00 


1000   00 


and  creates  the  new  account : 

Reserve  for  Depreciation  of  Machinery 


100 


00 


Our  final  entry  closing  the  Depreciation  Account  into  Profit  and 
Loss  is  the  same. 

The  intermediate  step  of  first  charging  the  Depreciation  Account 
is  really  not  essential,  and  in  practice  is  not  used ;  thus,  the  entry  for 
our  illustration  is: 

Profit  and  Loss  $100.00 

Reserve  for  Depreciation  i 
of  Machinery  J 

By  this  entry  the  necessary  record  is  made. 

So  at  any  time  the  value  of  an  asset  can  be  readily  ascertained  by 
reference  to  the  two  accounts.  In  a  Balance  Sheet  the  asset  appears 
at  its  original  valuation  on  the  left,  and  in  order  that  the  value  of  the 


$100.00 


140     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

business  be  not  improperly  inflated,  the  assets  are  offset  on  the  oppo- 
site side  by  the  various  Reserve  Accounts  which  appear  as  liabilities. 
At  the  end  of  the  life  of  the  asset  the  Reserve  Account  in  our 
illustration  appears  as  follows : 

Reserve  for  Depreciation  of  Machineiy 


1902 

Jan. 

1908 

Jan. 

19<>4 

Jan. 

1906 

Jan. 

1906 

Jan. 

1907 

Jan. 

1908 

Jan. 

1909 

Jan. 

1910 

Jan. 

1911 

Jan. 


100 

00 

100 

00 

100 

00 

100 

00 

100 

00 

100 

00 

100 

00 

100 

00 

100 

00 

100 

00 

Thus,  the  asset  (Machinery)  is  completely  offset  by  the  liability 
(Reserve  for  Depreciation  of  Machinery). 

On  the  purchase  of  a  new  and  similar  machine  for  cash  the 
entry  is : 

Reserve  for  Depreciation  of  Machinery 

Machinery 
Machinery 

Cash 

It  will  now  be  understood  that  the  purpose  of  these  supplementary 
facts,  and  their  introduction  in  our  books,  is  to  produce  a  more  exact 
statement  of  our  business,  by  properly  qualifying  the  values  therein. 

We  have  illustrated  this  only  with  reference  to  fixed  tangible 
assets,  such  as  machinery ;  but  it  is  necessary  that  other  values  of 
the  business,  such  as  Accounts  Receivable,  be  likewise  treated. 


DEPRECIATION,  RESERVES,  AND  ACCRUALS 


141 


Accounts  Receivable  is  but  another  name  for  the  indebtedness  to 
the  business,  as  evidenced  by  the  debit  balances  to  the  various  cus- 
tomers' accounts  appearing  in  the  Ledger.  While  these  are  indica- 
tive of  value  owing  to  the  business,  it  is  the  general  experience  that 
these  values  are  seldom  all  realized  ;  and  by  this  same  experience  it  is 
possible  for  a  proprietor  to  state  approximately  the  percentage  of 
the  debts  owing  to  the  business  which  for  various  reasons  will  not  be 
paid.  These  unproductive  accounts  are  known  in  bookkeeping  tech- 
nology as  "  Bad  or  Doubtful  Debts."  Of  course,  if  an  account  is  ir- 
retrievably lost,  the  account  may  at  once  be  written  off  to  Profit  and 

Loss,  thus : 

Bad  Debts 

James  Garvin 
After  this  comes  the  entry : 

Profit  and  Loss 

Bad  Debts 

The  difficulty,  however,  does  not  lie  in  situations  of  this  sort. 
It  is  the  constant  uncertainty  as  to  which  particular  accounts 
will  not  be  paid,  and  last,  and  most  important,  the  desire  that  the 
losses  incurred  should  be  charged  to  the  proper  fiscal  period,  which 
makes  the  Reserve  for  Bad  Debts  Account  a  necessity  to  a  proper 

record. 

To  explain,  suppose  in  1913  $50000.00  worth  of  merchandise 
was  sold  on  open  account,  and  that  in  previous  years  the  books 
showed  an  average  loss  of  2  %  on  the  Accounts  Receivable.  On 
the  closing  of  the  books,  Jan.  1,  1913,  it  would  not  be  proper  to 
consider  the  Accounts  Receivable  as  worth  $50000.00,  when  as  a 
matter  of  record,  year  after  year,  the  business  has  lost  2  %.  Further- 
more, since  the  merchandise  was  sold  during  the  past  year,  any  losses 
incurred  should  be  borne  by  that  period.  Thus,  without  actually 
waiting  for  the  debts  to  become  bad,  consideration  is  taken  of  past 
experience,  and  2%,  or  $1000.00,  is  charged  to  Profit  and  Loss 
Account.  What  then  of  the  corresponding  credit  or  credits  ?  At 
this  time  the  various  Accounts  Receivable  appear  in  good  condition 
and  would  ordinarily  be  credited  only  on  settlement  of  the  accounts. 
It  is  now  that  recourse  is  had  to  the  Reserve  for  Bad  Debts  Account, 
again  a  financial  account  with  a  credit  balance,  created  for  the 
particular  purpose  in  this  instance  of  reducing  the  book  value  of 
Accounts  Receivable.     The  entry  is  : 


I 


142     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Profit  and  Loss  $1000.00 

Reserve  for  Bad  Debts  11000.00 

This  leaves  the  Accounts  Receivable  for  the  time  being  unaffected, 
but  at  the  same  time  records  the  predetermined  loss  in  a  proper 
period.  Later,  if  James  Hadley,  who  owes  the  business  150.00, 
utterly  fails,  the  entry  is: 

Reserve  for  Bad  Debts  f  50.00 

James  Hadley  $50.00 

This  closes  out  his  account,  and  by  the  previous  use  of  the 
Reserve  Account,  makes  it  unnecessary  to  go  back  and  adjust  the 
last  year's  profits  and  losses. 

Accruals 

To  continue  the  practice  of  allocating  the  profits  or  losses  to  the 
period  wherein  they  properly  belong  leads  us  to  a  consideration 
of  other  items  of  value,  commonly  termed  "Accrued  Items"  or 
"Accruals." 

Definition.  —  Accruals  are  positive  amounts  of  value  which: 

(a)    Have  been  paid  in  one  period,  for  an  obligation  due  or 

applicable  to  a  subsequent  period,  in  which  case  they 

are  assets. 
(i)    Consist  in  an  obligation  created  and   existent   in   one 

period,  but  which    will  not   be   discharged   until   a 

subsequent  period,  in  which  case  they  are  liabilities. 

For  example,  under  (a)  we  have  rent,  insurance,  advertising,  etc., 
in  cases  where  the  amount  expended  for  these  items  includes  not 
only  the  period  in  question,  but  a  subsequent  period. 

Under  (5)  we  have  wages,  commission,  interest  on  bonds,  taxes, 
etc.,  in  cases  where  these  obligations  have  been  created  in  the  period 
in  question,  but  for  which  payment  is  not  to  be  made  until  the  next 
period. 

Thus  it  is  plain  that  under  (a)  we  have  "  Accruals  Receivable," 
being  positive  value  to  be  received,  hence  "  Assets  "  ;  and  under  (ft), 
"Accruals  Payable,"  positive  value  to  be  paid,  hence,  "liabilities." 

How  Accruals  are  Found.  —  Such  items  of  accrued  value  can  be 
ascertained  by: 

(a)    An  intimate  knowledge  of  the  business, 
(ft)    Previous  Statements  of  the  business. 


DEPRECIATION,  RESERVES,  AND  ACCRUALS 


143 


Handling  on  the  Books.  —  Accruals  may  be  better  understood  by 
considering  the  manner  in  which  they  are  handled  on  the  books. 
Take  the  following  illustrations: 

On  July  1,  the  Alton  B.  Kirk  Co.  desires  to  close  its  books  for 
the  six  months'  period  just  ended,  and  to  ascertain  the  profit  or  loss. 
On  the  Trial  Balance  is  the  account  "Land  and  Buildings" 
i^  40000.00,  and  yet  no  account  can  be  found  for  taxes.  The  reason 
becomes  evident  when  it  is  found  that  the  taxes  are  never  paid  until 
December;  but  a  glance  at  the  last  yearly  Statement  reveals  the 
fact  that  the  taxes  are  $600.00  per  annum.  Is  it  correct  to  close 
the  books  and  find  the  net  profit  or  loss  without  considering  a  just 
proportion  of  this  amount  ?  It  is  evident  that  the  present  period 
should  stand  its  share  of  the  annual  tax  loss,  which  is  $300.00; 
therefore,  if  this  amount  has  been  lost  in  this  period  and  not  paid,  it 
is  also  a  liability.  This  fa<it  can  be  recorded  in  our  losses  and  on 
our  books  by  the  following  entries : 

Taxes  $300.00 

Taxes  Accrued  $300.00 

and 
Profit  and  Loss  $300.00 

Taxes  $300.00 

Thus  Taxes  Account  is  closed  as  a  loss  and  Taxes  Accrued  Account 
remains  open  to  show  the  liability. 

In  December,  when  the  yearly  tax  bill  of  $600.00  is  paid,  the 
Cash  Book  entry  is  : 

Taxes  Accrued  $300.00 

Taxes  $300.00 

Cash  « 600.00 

By  this  entry  the  liability  of  Taxes  Accrued  is  canceled  and  the 
new  tax  loss  of  $300.00  is  recorded  in  Taxes  Account,  to  be  later 
written  off  to  Profit  and  Loss. 

The  first  two  entries  mentioned  above  have  the  advantage  of 
opening  the  Taxes  Account  in  the  Ledger ;  and  though  it  may  be 
immediately  closed,  it  remains  as  a  record  of  the  tax  cost  for  the 
period  being  closed.  Another  method,  not  following  Accounting 
principles  so  closely,  yet  having,  its  advantages,  is  to  combine  the 
first  two  entries  into: 

Profit  and  Loss  $300.00 

Taxes  •  $300.00 


144     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

This  places  the  loss  directly  in  Profit  and  Loss  and  saves  the  opening 
of  Taxes  Accrued  Account,  and  the  Taxes  Account  having  no  debit 
remains  open  to  show  the  liability.  By  this  method  the  entry  in  the 
Cash  Book  in  December  is  : 

Taxes  1600.00 

Cash  f  600.00 

The  Taxes  Account  now  appears  : 


Taxes 


Dec. 


30 


CB 


600 


(X) 


July 


J 


300 


00 


Thus  the  liability  in  Taxes  Account  of  f  300.00,  carried  from  July 
to  December,  is  canceled  by  the  debit  51600.00  and  the  $300.00 
balance  on  the  debit  side  is  the  new  tax  loss. 

This  latter  method  is  the  one  more  commonly  used. 

To  take  another  illustration  : 

The  same  firm,  Alton  B.  Kirk  Co.,  has  on  its  Trial  Balance  an 
account  with  Advertising,  showing  $1200.00  debit  balance.  An 
investigation  of  this  account  shows  that  this  $1200.00  was  paid 
out  on  Jan.  1,  for  an  advertising  contract  to  run  two  years. 
Although  at  first  glance  this  account  seems  to  be  a  total  loss,  inves- 
tigation shows  that  since  but  one  fourth  of  the  contract  has  expired, 
only  one  fourth  has  been  lost,  and  the  remaining  three  fourths  must 
be  an  asset,  representing  service  due  the  business.     Thus  : 

Advertising 


Jan. 


CB 


1200 


00 


Of  this  $1200.00  we  desire  to  register  one  fourth,  or  $300.00,  as  a 
loss,  and  to  show  the  balance,  $900.00,  as  an  asset.  This  may  be 
done  by  either  of  the  following  entries  : 


DEPRECIATION,  RESERVES,  AND  ACCRUALS 


145 


Advertising  Accrued 

Advertising 


$900.00 


$900.00 


and 


$300.00    . 


Profit  and  Loss 

Advertising  $300.00 

This  is  similar  to  the  first  entries  for  the  Taxes  illustration,  the 
Advertising  Account  closing  out  when  the  $300.00  is  counted  as  a 
loss,  and  the  Advertising  Accrued  Account  remaining  open  to  show 
the  asset : 

Profit  and  Loss  $1200.00 

Advertising  $1200.00 

Advertising  $900.00 

Profit  and  Loss  $  900.00 

By  this  method,  regarding  the  entire  $1200.00  as  a  loss  and  the 
$900.00  as  a  gain,  $300.00  is  counted  as  a  loss. 

Still  another  method  is : 

Profit  and  Loss  $300.00 

Advertising  $  300.00 

This  method  takes  the  actual  loss  of  $  300.00  direct  to  Profit  and 
Loss,  and  the  debit  balance  necessarily  existing  in  Advertising 
Account  shows  the  asset  as : 


'— "— -o 

1913 

Jan. 

1 

CB 

1200 

00 

1918 

July 

1 

< 

J 

300 

00 

1 

Balance 

00 
00 

• 

Balance  * 

900 

00* 

1200 

1200 

00 

July 

-   900 

•  In  red  ink. 

Thus  it  is  seen  that  there  are  two  or  three  methods  of  handling 
accruals  on  the  books,  but  the  second  method  used  in  the  first 
illustration,  and  the  third  method  in  the  second  illustration,  are  the 
most  satisfactory. 

From  the  illustrations  it  is  seen  that  it  is  possible  for  our  nominal 
accounts  to  remain  open  on  the  books  after  closing.  At  such  time 
the  nominal  account  has  become  temporarily  a  financial  account,  as 


146     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

its  nominal  value  has  been  closed  into  Profit  and  Loss;  and  the 
balance  still  carried  by  the  nominal  account  is  an  asset  or  liability. 

The  handling  of  accruals  is  not  difficult,  provided  each  accrual 
considered  is  thoroughly  understood,  both  with  regard  to  the  amount 
gained  or  lost,  and  the  amount  of  the  resulting  asset  or  liability. 

Perhaps  a  brief  summary  of  this  chapter  may  be  expedient.  We 
have  considered  depreciation,  reserves,  and  accruals  in  order  that 
we  may  be  able  to  close  the  books  and  present  Statements  of  the 
business  that  reveal  as  closely  as  possible  its  true  condition.  It  is  evi- 
dent now  that  the  Statement  of  Profit  and  Loss  taken  only  from  the 
facts  in  the  books  would  produce  a  result  that  was  possibly  far  from 
being  correct.  The  determining  of  what  the  supplementary  facts 
are  and  the  recording  of  them  on  the  books,  together  with  the  detail 
necessary  to  make  all  the  closing  entries  and  balance  the  accounts, 
are  what  makes  the  closing  of  the  books  and  the  preparation  of  the 
Statements  one  of  the  most  difficult  tasks  of  an  accountant.  These 
new  considerations  have  been  but  supplementary  to  the  original 
procedure  in  finding  the  profit  or  loss,  and  closing  the  books.  Now 
that  all  of  the  st^ps  have  been  discussed  in  the  finding  of  such  profit 
or  loss  and  closing  of  books,  they  may  be  listed  as  follows  : 

To  dose  tiie  Books: 

1.  Take  a  Trial  Balance  of  the  Ledger. 

2.  Take  an  inventor}^  of  merchandise. 

3.  Ascertain  the  depreciation  on  all  depreciable  assets. 

4.  Ascertain  the  reserve  to  be  set  aside  for  bad  debts. 
6.    Consider  carefully  all  accruals. 

6.  Close  all  nominal  accounts  into  Profit  and  Loss. 

7.  Close  the  balance  of  Profit  and  Loss  into  the  Proprietors' 

Personal  Accounts. 

8.  Close  the  Proprietors'  Personal  Accounts  into  their  Capital 

Accounts. 

9.  Rule  and  balance  the  various  financial  accounts,  reducing 

them  to  one  debit  or  credit  amount. 
10.    Take  a  final  Trial  Balance,  or  Balance  Sheet. 

PROBLEM  36 

Using  the  following  data,  prepare  a  Statement  of  Loss  and  Gain, 
a  Statement  of  Resources  and  Liabilities,  make  the  Journal  entries 
necessary  to  close  the  books,  and  prepare  a  final  Trial  Balance,  or 
Balance  Sheet. 


DEPRECIATION,   RESERVES,   AND  ACCRUALS 


147 


Trial  Balance 


H.  C.  Atla8 


March  31,  1913 


H.  C.  Atlas,  Investment 

20000 

00 

Accounts  Receivable 

10000 

00 

Notes  Receivable 

2730 

00 

Accounts  Payable 

7600 

00 

Notes  Payable 

3650 

00 

Real  Estate 

7500 

00 

• 

Cash 

4200 

00 

Merchandise 

9300 

00 

Rent 

480 

00 

Interest 

300 

00 

Commission 

2300 

00 

34030 

00 

34030 

00 

NoTB.  —  The  merchandise  inventory  on  hand  at  the  time  of  closing  is  S  10360.00. 
There  is  $  40.00  due  for  rent  but  not  yet  collected  by  the  business.  Of  the  item  of 
Commission  $  1100.00  represents  amounts  paid  H.  C.  Atlas  for  service  to  be  rendered 
after  March  31,  1913.  There  is  .^25.00  for  interest  due  by  the  business  but  not  yet 
paid. 

PROBLEM  37 
From  the  following  Trial  Balance  prepare  Statements  of  Loss  and 
Gain  and  Assets  and  Liabilities ;  also  make  the  Journal  entries  nec- 
essary to  close  this  set  of  books.     Make  a  final  Trial  Balance. 

Trial  Balance 


H.  White 

Cash 

Real  Estate 

Expense 

Interest 

Rent 

Buildings 

Commission 

Merchandise 

Notes  Receivable 

Notes  Payable 

Machinery 

Furniture  and  Fixtures 

Wages 

Insurance 

Accounts  Receivable 

Accounts  Payable 


50000 

5000 

00 

11500 

00 

4200 

00 

150 

00 

3600 

00 

12000 

00 

2500 

6000 

00 

8700 

00 

3700 

5000 

00 

800 

00 

1200 

00 

500 

00 

2250 

00 

4700 

60900 

00 

60900 

00 


00 


00 


00^ 
00 


148      A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Note. — Merchandise  inventory,  $12000.00.  Depreciation  as  follows:  Machinery, 
10%;  Buildings,  Z%\  Furniture  and  Fixtures,  15%. 

Of  the  item  of  rent,  $(K)0.00,  or  one  month's  rent,  has  been  paid  in  advance.  Of 
the  Commission  on  our  books,  §r)00.00,  although  received,  is  not  yet  due.  One  week's 
wages  of  §  200.00  have  not  been  paid  and  are  not  on  the  books.  The  Insurance  Account 
shows  the  premium  for  one  year,  of  which  only  two  months  have  been  used. 

PROBLEM  38 

From  the  following  Trial  Balance  and  subsidiary  data  make  the 
Journal  entries  necessary  to  close  Q.  C.  Brown's  books. 

Trial  Balance 


Q.  C.  Brown 

25000 

00 

Real  Estate 

10000 

00 

Machinery 

6000 

00 

Furniture  and  Fixtures 

1000 

00 

Accounts  Receivable 

8000 

00 

Accounts  Payable 

2500 

00 

Notes  Receivable 

6200 

00 

Notes  Payable 

5000 

00 

Merchandise 

400 

00 

Wages 

1200 

00 

Rent 

480 

00 

Commission 

220 

00 

Interest 

200 

00 

Insurance 

600 

00 

Advertising 

400 

00 

38600 

00 

33600 

00 

\  I 


Note.  —  Wages  due  and  not  paid,  $250.00. 

Rent  due  and  not  collected,  $  150.00. 

Inventory  of  goods  on  hand,  $  1000.00. 

Commission  earned  but  not  yet  received,  $40.00. 

The  iusurance  and  advertising  contracts  were  yearly  contracts,  placed 

six  months  ago. 
Depreciation  :  On  Machinery,  10%. 

On  Furniture  and  Fixtures,  15%. 
After  making  the  closing  entries,  present  a  Proof  Trial  Balance. 


CHAPTER  XXII 

THE  BALANCE  SHEET  AND  PROFIT  AND  LOSS  STATEMENT 

At  the  end  of  the  chapter  on  "  Closing  a  Set  of  Books  "  it  was 
seen  that  the  final  step  in  the  process  was  a  test  of  the  equilibrium 
of  the  books,  which  took  the  form  of  a  final  or  proof  Trial  Balance. 
This  is  more  commonly  known  as  a  "  Balance  Sheet."  As  a  Trial 
Balance  it  was  of  interest  only  to  the  bookkeeper  in  telling  him  if 
his  books  still  balanced  after  closing;  but  as  a  Balance  Sheet  its 
purpose  is  more  general,  in  that  it  combines  a  statement  of  the 
assets  and  liabilities  of  the  business. 

The  terms  "  assets  "  and  "  liabilities  "  are  used  in  their  broadest 
sense.  By  liabilities  are  meant  not  only  the  outstanding  debts  of 
the  business,  but  all  financial  liability  accounts,  including  those 
representing  the  interests  of  the  owners ;  and  in  the  case  of  corpora- 
tions the  liabilities  include  the  shareholders'  accounts  and  other 
accounts  of  like  nature,  such  as  surplus,  undivided  profits,  etc. 

Definition.  —  A  broader  definition  of  a  Balance  Sheet  is : 

A  Statement  of  the  assets  and  liabilities  of  a  business  at  a  given 
time,  representing  the  financial  accounts  of  a  business  remaining 
open  on  the  Ledger  after  the  books  have  been  closed. 

Revealing  as  it  does  a  Statement  of  the  accounts  open  on  a 
Ledger  after  the  books  have  been  closed,  it  must  necessarily  include 
not  only  the  results  of  past  records  of  the  books  themselves,  but  the 
results  after  inventories,  depreciation,  reserves,  and  accruals  have 
been  considered  and  made  to  appear  on  the  books.  It  is  then  a 
concrete  expression  of  the  financial  condition  of  a  business.  As 
such  a  statement,  the  Balance  Sheet  has  come  to  be  one  of  the  most 
important  instruments  in  accounting,  and  is  of  vital  interest  to : 

1.  The  manager. 

2.  The  proprietor  or  stockholder. 

3.  The  creditor. 

4.  The  investor. 

The  manager,  proprietor,  and  stockholder  are  naturally  interested 
in  a  Statement  which  reveals  the  solvency  facts  of  the  business ;  and 

140 


1 


I 


150     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

the  creditors  and  investors  under  ordinary  conditions  will  neither 
lend  nor  risk  their  money  in  a  concern  whose  Statements  reveal  a 
doubtful  condition. 

Importance  of  the  Balance  Sheet.  — The  importance  of  the  Balance 
Sheet  is  fast  being  recognized.  The  prospective  creditors  particu- 
larly the  banks,  before  granting  a  loan,  often  demand  a  Balance 
Sheet  of  the  prospective  borrower,  in  order  to  ascertain  the  condition 
of  his  business;  and  the  investor  ascertains  the  growth  and  con- 
dition of  a  business  by  a  comparison  of  the  successive  Balance  Sheets. 
This  general  use  of  Balance  Sheets  is  being  aided  and  facilitated  by 
an  attempt  at  uniformity  of  presentation,  in  so  far  as  that  is  possible 
for  businesses  of  different  character. 

Form  of  the  Balance  Sheet.  — The  sheet  is  divided  vertically  into 
two  equal  parts,  the  assets  being  listed  on  the  left-hand  side  and  the 
liabilities  on  the  right.  There  are  two  principal  methods  of  listing 
the  assets  and  liabilities.  The  first  is  to  list  them  in  what  has  been 
termed  the  order  of  their  liquidity,  starting  the  assets  with  cash,  to 
be  followed  by  accounts  receivable,  notes  receivable,  etc.,  and  ending 
with  such  stable  assets  as  machinery,  buildings,  etc.  The  liabilities 
begin  with  accounts  payable,  to  be  followed  by  notes  payable,  etc., 
and  end  up  with  the  ownership  accounts  of  the  business.  While  this 
order  is  very  often  followed,  it  is  slowly  giving  way  to  a  principle 
which  considers  that  assets  and  liabilities  should  be  listed  in  the 
order  of  their  importance  and  permanency.  This  usage  considers 
that  while  Cash,  Accounts  Receivable,  Notes  Receivable,  etc.,  are 
important  accounts,  they  nevertheless  represent  a  constantly  chang- 
ing value,  and  are  necessarily  of  lesser  importance  than  such  items  as 
Plant,  Equipment,  etc.,  which,  representing  as  they  do  the  principal 
values  in  the  business,  should  be  listed  on  the  Balance  Sheet  so  as  to 
be  the  first  items  to  meet  the  eye  of  the  reader. 

The  treatment  of  the  liabilities  is  similar  to  the  asset  side,  they 
being  listed  according  to  importance.  Accordingly,  in  the  case  of 
corporations  the  Capital  Stock  Account  is  usually  placed  first,  fol- 
lowed by  Bonds  or  Mortgages,  then  Accounts  Payable,  Notes  Pay- 
able, etc.,  with  the  Reserve  Accounts,  and  Surplus  or  Undivided 
Profits  coming  at  the  end.  In  the  case  of  an  individual  or  firm 
Balance  Sheet,  it  is  customary  to  state  the  Capital  of  the  proprietors 
of  the  business  as  the  last  item. 

This  second  method  of  presenting  a  Balance  Sheet  groups  the 
assets  into  the  following  three  classes ; 


BALANCE  SHEET  AND  PROFIT  AND  LOSS  STATEMENT    151 

Fixed 

Current 

Deferred 

This  form  is  not  applicable  to  the  Bahmce  Sheets  of  banks,  trust 
companies,  building  and  loan  associations,  etc.,  but  applies  rather  to 
manufacturing  concerns. 

Fixed  Assets.  —  "Fixed  Assets"  are  those  which  aie  constant 
and  stable,  whose  balances  show  very  little  variation;  for  example: 

Land  Buildings 

Machinery  Tools,  etc. 

These  are  not  called  "  fixed  assets  "  because  they  are  immovable, 
for  locomotives  and  steamships  and  the  like  are  equally  fixed  in 
the  accounting  sense. 

Current  Assets.  —  "  Current  Assets  "  are  those  which  are  readily 
converted  into  cash,  whose  balances  are  constantly  changing.  They 
are  sometimes  called  "  quick  "  or  "  available  "  assets.  Examples  of 
these  are : 

Cash 

Goods  on  hand,  both  raw  and  finished  material 
Notes  Receivable 
Accounts  Receivable 

Deferred  Assets.  —  "  Deferred  Assets  "  are  items  of  value  to  the 
business,  neither  fixed  nor  readily  salable,  such  as  improvements 
that  are  to  be  written  off  over  a  number  of  years,  good  will,  patent 
rights,  etc. 

A  group  of  assets  apt  to  be  found  either  in  the  "  current "  or 
"  deferred  "  class  is  represented  by  such  accounts  as  interest  paid  in 
advance,  advertising,  insurance  premiums,  taxes  paid  in  advance, 
etc.  This  may  be  regarded  as  deferred  in  a  strict  sense  of  the  word 
and  so  classed  under  "deferred  assets."  On  the  other  hand,  they 
may  be  regarded  as  prepayments  of  cash,  and  are  therefore  just  as 
available  as  cash  or  other  current  assets.  A  conservative  classifica- 
tion is  to  place  them  with  the  current  assets  unless  payments  have 
been  made  for  improvements,  or  contracts  extending  over  a  period 
of  several  years,  in  which  case  it  seems  preferable  to  assemble  them 
with  the  deferred  assets. 

Liabilities.  —  As  has  been  mentioned  before,  the  first  liability  to 
be  listed  in  the  case  of  corporations  is  the  Capital  Stock.     The  next 


152    A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

liability  to  be  listed  is  the  amount  of  bonds,  or  mortgages.     The 
current  liabilities  theii  follow,  which  include : 

Notes  Payable 
Accounts  Payable 
Unpaid  taxes,  wages,  etc. 
Unpaid  dividends,  etc. 

Reserves.  —  Another  group  of  liability  accounts  are  the  Reserves, 
such  as  Reserve  for  Depreciation,  Reserve  for  Bad  Debts,  etc.,  which, 
when  placed  on  the  liability  side  of  the  Balance  Sheet,  naturally  fol- 
low current  liabilities.  Although  these  accounts  appear  on  the 
liability  side  of  the  Ledger,  their  purpose  is  merely  to  reduce  the 
value  of  certain  assets ;  and  so  it  has  become  a  common  practice  for 
the  larger  companies  in  presenting  their  Balance  Sheets  to  deduct 
the  amount  of  such  Reserves  from  the  value  of  the  particular  assets 
so  affected.  Both  methods  of  presenting  the  Reserves  are  shown  in 
illustrations  II  and  III. 

In  the  Balance  Sheet  of  an  individual  or  firm  the  present  worth 
should  be  placed  last  among  the  liabilities;  and  in  the  Balance 
Sheet  of  a  firm  the  interest  of  each  individual  partner  should  be 
listed  separately. 

If  the  Balance  Sheet  is  that  of  a  corporation,  such  accounts  as 
"  Surplus,"  "  Undivided  Profits,"  and  "  Profit  and  Loss  "  may  be 
found,  representing  the  profits  of  the  business.  It  is  important  that 
the  profit  of  the  period  represented  by  the  Balance  Sheet  should  be 
clearly  shown. 


Alton  B.  Kirk 


Illustration  I 
Balance  Sheet 


December  31,  1913 


Real  Estate 

20000 

00 

Notes  Payable 

2400 

00 

Horses  and  Wagons 

3000 

00 

Accounts  Payable 

4900 

00 

Furniture  and  Fixtures 

500 

00 

Wages  Accrued 

200 

00 

Cash 

4250 

00 

Taxes  Accrued 

120 

00 

Notes  Receivable 

950 

00 

Accounts  Receivable 

4100 

00 

Invt.  of  Merchandise 

7600 

00 

Alton  B.  Kirk 

Advertising 

600 

00 

Past  Worth         32250.00 

Unexpired  Insurance 

90 

00 
00 

Profits  for  Year      1220.00 

33470 

00 

41090 

41090 

00 

BALANCE  SHEET  AND  PROFIT  AND  LOSS  STATEMENT    153 


Illustration  II 


Balance  Sheet 


A.  B.  C.  Foundry  Co 

. 

July  31, 1913 

Land 

Buildings 

Machinery 

Boilers  and  Engines 

Tools 

Furniture  and  Fixtures 

Horses  and  Wagons 

Investments 

Cash 

Notes  Receivable 

Accounts  Receivable 

Inventories   of    Raw    and 

Finished  Material 
Advertising 
Insurance 

50000 
14000 
12000 

6000 
800 

1000 

800 

25000 

10100 

1000 

4000 

6500 

1500 

900 

00 
00 
00 
00 
00 
00 
00 
00 
00 
00 
00 

00 
00 
00 

00 

Capital  Stock 
Accounts  Payable 
Notes  Payable 
Payroll  Accrued 
Taxes  Accrued 
Reserve  for  Depreciation, 
on  : 

Buildings 

Machinery 

Boilers  and  Engines 

Tools 

Furniture  and  Fixtures 

Horses  and  Wagons 

Bad  Debts 
Surplus 

Undivided  Profits 
Bal.  7/31/12            8460.00 
Less  Dividends 

to  7/31/13            8000.00 

460.00 
Net  Profit,  year 

ended  7/31/13     9540.90 

/ 

100000 

4200 

8105 

450 

180 

80 

240 

51 

25 

50 

19 

198 

10000 

10000 

00 
00 
00 
00 
00 

00 
00 
30 
60 
00 
20 
00 
00 

90 

133600 

133600 

00 

» 

I 


b 


.J 


154     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


A.  B.  C.  Foundry  Co. 


Illustration  III 
Balance  Sheet 


July  31,  1913 


Land 
Buildings 
Less  Depreciation 

Machinery 
Less  Depreciation 

Boilers  and  Engines 
Less  Depreciation 

Tools 
Less  Depreciation 

Fnm.  and  Fixtures 
Less  Depreciation 


14000.00 
80.00 

12000.00 
240.00 

eooo.oo 

gl.30 

800.00 
25.60 


1000.00 
50.00 


Horses  and  Wagons  800.00 

Less  Depreciation  19.20 

Investments 
Cash 

Notes  Receivable 
Accts.  Receivable  4000.00 

Less  Res.  for  Bad 

Debts  198.00 

Inventories 

Raw  and  Finished  Material 
Advertising 
Insurance 


50000 
13920 

11760 

6948 

774 

950 


780 

25000 

10100 

1000 


3802 

6500 

1500 

900 


1329:{5 


00 
00 

00 

70 

40 

00 


80 
00 
00 
00 


00 

00 
00 
00 
90 


Capital  Stock 
Accounts  Payable 
Notes  Payable 
Payroll  Accrued 
Taxes  Accrued 
Surplus 
Undivided  Profits 

Bal.  7/31/12 
Less  Dividends 

to  7/31/13 

The  Net  Profit 
for  the  Year 
ended  7/31/13 


8460.00 

8000.00 
460.00 


9510.90 


100000 

4200 

8105 

450 

180 

10000 


10000 


00 
00 
00 
00 
00 
00 


90 


132935 


90 


BALANCE  SHEET  AND  PROFIT  AND  LOSS  STATEMENT    155 

Profit  and  Loss  Statements 

In  close  relation  to  the  Balance  Sheet,  and  a  necessary  supplement 
thereto,  is  the  Profit  and  Loss  Statement,  variously  known  as  a 
"  Statement  of  Losses  and  Gains,"  "  Income  Sheet,"  etc.  The  pur- 
pose of  such  a  Statement  is  to  disclose  a  detailed  history  of  the 
profits  and  losses  of  a  business  for  a  given  period.  Heretofore  we 
have  presented  such  facts  in  the  profit  and  loss  columns  of  the  Six- 
Column  Statement.  When  we  first  considered  the  Six-Column 
Statement,  it  was  mentioned  that  while  it  was  used  in  teaching  to  dis- 
tinguish between  loss  and  gain  and  asset  and  liability  items,  yet  it 
was  too  technical  for  practical  purposes.  We  have  already  seen 
that  the  asset  and  liability  columns  are  presented  in  a  separate  State- 
ment called  the  "Balance  Sheet";  and  similarly  the  loss  and  profit 
columns  are  separately  presented. 

These  Profit  and  Loss  Statements  take  many  forms,  varying  from 
a  mere  reproduction  of  the  loss  and  profit  columns  of  the  Six-Column 
Statement  to  an  elaborate  Income  Sheet.  The  form  must  be  depend- 
ent upon  the  particular  kind  of  business,  but  the  purpose  of  the 
Statement  is  accomplished  if  the  sources  of  profits  and  losses  are 
clearly  revealed. 

To  illustrate,  take  the  following: 


Trial  Balance 


Alton  B.  Kirk 


December  31,  1913 


Alton  B.  Kirk 

Cash 

Land 

Buildings 

Merchandise 

Insurance 

A.  R.  Harris 

Interest 

Expense 

Repairs 

Wages 

Commission 

Merchandise  Discount 

J.  R.  Bell 

A.  C.  Carey 


20000 

00 

4760 

30 

8000 

00 

6000 

00 

1000 

70 

50 

00 

650 

00 

5 

40 

125 

00 

60 

00 

3350 

00 

300 

00 

65 

60 

2000 

00 

1625 

00 

23996 

00 

23996 

00 

I 


156     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Present  a  Statement  of  Profit  and  Loss  from  the  above  Trial 
Balance,  taking  into  consideration  the  following  : 

A  reserve  of  3  %  for  depreciation  on  buildings  is  to  be  created. 
The  merchandise  inventory  is  $5000.00. 

Illustration  I 
Semi-annual  Statement  of  Losses  and  Gains 

Alton  B.  Kirk  December  31,  1913 


Losers 

1 

Gains 

Merchandise 

1000 

70 

Interest 

5 

40 

Insurance 

60 

00 

Commission 

300 

00 

Expense 

125 

00 

Merchandise  Discount 

65 

60 

Repairs 

60 

00 

Merchandise  Inventoiy 

5000 

00 

Wages 

3350 

00 

Reserve  for  Depreciation  on 

Buildings 

180 

00 

Net  Gain  * 

605 

30* 
00 

5371 

5371 

00 

*  In  red  ink. 

It  will  readily  be  seen  that  this  Statement  is  similar  to  the  loss 
and  profit  columns  of  the  Six-Column  Statement ;  at  the  same  time, 
it  would  have  very  little  meaning  to  one  unfamiliar  with  book- 
keeping. 

A  much  better  form  of  presenting  these  facts  is  shown  at  the  top 
of  the  following  page. 

The  second  illustration,  which  presents  a  much  clearer  picture  of 
the  profit  and  loss  facts,  contains  the  same  amounts  that  are  in  the 
first  illustration,  with  the  exception  that  the  Merchandise,  Merchan- 
dise Discount,  and  Inventory  Accounts  have  been  analyzed.  Thus, 
instead  of  showing  Merchandise  with  a  debit  balance  of  f  1000. 70  as 
a  loss,  and  the  Inventory  of  Dec.  31, 1913  — $5000.00,  as  a  gain,  the 
component  parts  of  these  accounts  are  taken  and  listed,  as  "  Sales," 
"Purchases,"  "Inventory,  June  30,  1913,"  and  "Inventory,  Dec.  31, 
1913."  Merchandise  Discount  has  been  similarly  treated  and  its 
debit  and  credit  sides  are  presented  as  "  Discount  Allowed  "  and 
"Discount  Received." 


BALANCE  SHEET  AND  PROFIT  AND  LOSS  STATEMENT     157 


Illustration  II 

Semi-annual  Statement  of  Profit 
Alton  B.  Kirk 


and  Loss 

December  31,  1913 


Sales 

Less  Discounts  Allowed 
Inventory,  June  30,  1913 
Purchases 

Less  Disc't  Rec'd 


12700.70 
165.60 


Less  Inventory,  Dec.  31, 1913 
Gross  profit  on  Merchandise 
Less 

Insurance 
Expense 
Repairs 
Wages 

Reserve  for  Depreciation  on  Bldgs. 
Net  profit  on  Merchandise 
Add 

Interest  Received 
Commission  Received 
Net  profit  of  business 


18000.00 
100.00 


6300.00 


12535.10 


18835.10 
5000.00 


50.00 

125.00 

60.00 

3350.00 

180.00 


5.40 
300.00 


17900 


13835 


4064 


3765 


299 


305 


605 


00 


10 


90 


00 


90 


40 


30 


The  second  illustration  is  the  form  of  Statement  commonly  used 
in  practice.  It  reveals  the  important  profit  and  loss  amounts,  such 
as  the  volume  of  sales  and  purchases,  the  inventories  at  the  end  of 
the  last  period  and  at  the  present  time,  the  amount  of  discount 
allowed  and  received,  etc.  Its  presentation  is  facilitated  in  most 
businesses  by  the  elimination  of  the  accounts  "Merchandise"  and 
"  Merchandise  Discount,"  and  the  use  in  their  stead  of  the  accounts 
"Purchases,"  "Sales,"  "Discount  on  Purchases,"  and  "Discount 
on  Sales." 


CAPITAL  AND  REVENUE 


159 


» 


CHAPTER  XXIII 

CAPITAL  AND  REVENUE 

It  is  with  the  close  of  the  discussion  of  the  Balance  Sheet  that  the 
first  glimpse  of  accounting  in  its  higher  sense,  and  the  long  vista  of 
its  possibilities,  opens  up  before  us.  Here  for  the  first  time,  with  the 
proper  interpretation  of  the  accounts  constituting  the  Statement  we 
have  a  bird's-eye  view  of  the  business,  and  we  realize  that  these  are 
the  solvency  facts  of  which  the  "  Capital "  is  composed.  In  close 
relation  to  our  Balance  Sheet,  and  a  necessary  supplement  thereto, 
we  meet  the  Income  Sheet,  another  form  of  Statement,  which  dis- 
closes in  its  "Revenue"  facts  a  somewhat  detailed  history  of  the 
profits  and  losses  of  the  period  just  closed. 

This  leads  us  to  a  careful  consideration  of  our  chapter,  Capital 
and  Revenue. 

Capital.  —  Capital  is  the  surplus  of  assets  over  liabilities,  and  com- 
prises in  its  two  component  parts  all  assets  on  one  side  and  all  liabil- 
ities on  the  other.  This  excess  represents  the  indebtedness  of  the 
business  to  its  proprietor  or  proprietors  for  the  unimpaired  invest- 
ment, plus  the  accumulated  profits.  If,  by  any  chance,  the  liabilities 
should  exceed  the  assets,  there  would  be  no  Capital,  but  a  deficit ; 
and  the  business  would  be  insolvent,  the  deficit  indicating  the  in- 
debtedness of  the  proprietor  or  proprietors  to  the  business  for  the 
impaired  investment. 

Revenue.  —  Revenue  is  the  amount  earned  by  the  carrying  on  of 
an  undertaking  and  is  the  excess  of  the  profits  and  income  over  the 
losses  and  expenses.  If  expenses  and  losses  exceed  the  profits  and 
income,  there  is  no  revenue,  but  rather  a  resulting  decrease  in  Capital, 
either  by  a  lessening  of  the  surplus  or  by  an  actual  deduction  from 
the  Investment. 

Importance  of  Distinction.  —  Too  much  stress  cannot  be  laid  on 
this  subject  of  Capital  and  Revenue  and  on  the  proper  distinction 
which  should  be  made  between  them.  As  will  be  later  seen  it  is  the 
confusion  of  these  two  classes  of  accounts  which  lets  down  the  bar 
of  strict  business  principles  and  opens  up  endless  possibilities  for 

168 


misleading  statements.  At  the  outset  it  may  be  of  assistance  to 
call  attention  to  the  fact  that  in  Capital  Accounts  we  have  again 
the  Financial  (Asset  and  Liability  Accounts),  and  in  the  Revenue 
Accounts  we  recognize  the  analogy  to  the  Nominal  (Profit  and  Loss) 
Accounts,  with  which  we  are  now  familiar.  We  are  now  treating  of 
them,  however,  in  a  way  which  involves  a  finer  distinction  between 
charges  so  nearly  on  the  line  of  both  Capital  and  Revenue.  Their 
correct  interpretation  is  largely  dependent  on  an  intimate  knowledge 
of  the  accounts  involved,  and  what  they  represent,  but  the  following 
general  tests  may  prove  of  assistance  if  intelligently  applied : 

TESTS 

1.  Is  the  expenditure  one  that  increases  the  permanent  value  of 

the  property  ? 

2.  Does  it  increase  the  output  or  capacity  of  the  plant  ? 

8.  Is  the  property  simply  repaired  or  has  there  been  an  addition  ? 
Has  it  merely  been  kept  up  to  its  standard,  or  is  the  addi- 
tional work  or  expenditure  an  asset? 

4.    Is  the  new  item  temporary,  or  permanent? 

6.  Has  the  work  included  charges  part  of  which  should  be  borne 
by  a  subsequent  period  ? 

Applications  of  Above  Tests.  —  1.  Take,  for  example,  our  first  test. 
As  the  owner  of  a  dwelling  house,  we  have  painted  and  papered  it 
throughout  and  made  sundry  necessary  repairs  in  order  to  retain  a 
tenant.  Have  we  increased  the  income  on  our  investment  or  increased 
the  permanent  value  of  our  asset  ?  If  so,  it  is  a  "  Capital  Charge  " 
(t.6.  a  debit  to  some  Capital  Account);  if  not,  it  is  a  "Revenue 
Charge"  (a  debit  to  some  Revenue  Account).  Being  an  expendi- 
ture merely  for  the  proper  maintenance  of  our  premises,  it  should 
then  be  charged  to  some  repair  account  (Revenue).  If  this  same 
house  were  later  remodeled  into  an  apartment  house,  increasing  our 
income  three  or  four  fold,  the  cost  of  such  remodeling  would  indis- 
putably be  charged  to  Capital. 

2.  We  have  machinery  in  our  factory  now  capable  of  producing 
1000  units  in  an  hour.  We  purchase  at  considerable  cost  a  patent 
device,  which,  when  attached  to  our  njachines,  considerably  increases 
their  working  capacity,  so  that  they  now  turn  out  1200  units  an 
hour.  Surely  such  an  expenditure  is  not  a  loss,  increasing  as  it  does 
the  value  of  our  plant.  Therefore  we  charge  it  to  Machinery  or 
some  such  Capital  Account,  thereby  adding  to  the  value  of  our  assets* 


n 


I 


160    A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

3.  These  same  machines,  as  a  result  of  wear  and  tear,  after  a 
certain  period  drop  to  a  production  of  1150  units  an  hour.  By 
replacing  the  worn-out  parts,  etc.,  they  are  brought  to  their  normal 
producing  capacity.  Has  their  value  been  thereby  enhanced,  or 
have  they  only  been  made  to  maintain  their  standard  of  efficiency? 
Undoubtedly,  the  latter,  and  therefore  the  expenditure  should  be 
borne  by  a  Repair  Account  (Revenue). 

4.  The  freight  shed  of  our  plant  has  been  destroyed  by  fire.  A 
temporary  one  is  hurriedly  erected  for  use  while  our  new  building 
is  in  process  of  construction.  Shall  this  temporary  shed,  costing 
$2500.00,  be  listed  in  our  Balance  Sheet  as  an  Asset  (charged  to 
Capital)  or  regarded  as  a  loss  (charged  to  Revenue)?  Is  it  pro- 
ductive of  revenue?  Has  it  increased  the  value  of  our  properties? 
The  answer  is  that  it  is  a  necessity  to  the  completion  of  our  new 
building,  and,  furthermore,  it  has  been  a  means  of  producing  revenue ; 
hence,  from  a  strict  accounting  standpoint,  it  should  be  charged  to 
the  cost  of  our  new  building  (Capital).  As  a  matter  of  business 
policy  this  charge  would  probably  be  made  to  a  Revenue  Account. 

The  importance  and  the  difficulty  of  ascertaining  Capital  and 
Revenue  facts  can  now  be  more  readily  understood.  It  is  strongly 
urged  that  in  making  the  original  entry  care  in  properly  distinguish- 
ing between  them  be  exercised  and  expressed  by  the  intelligent 
caption  of  the  accounts  to  be  charged.  The  character  of  the  charge 
should  be  clearly  indicated  by  the  name  given  the  account,  so  that 
in  taking  Statements  from  our  Ledger,  the  proprietors,  investors,  or 
creditors  will  not  be  misled  by  inflated  assets  on  the  Balance  Sheet, 
and  corresponding  decreased  losses  on  the  Income  Sheet  which  is  the 
effect  of  an  incorrect  charge  to  Capital.  Far  better  be  it  to  err  on 
the  right  side  by  charging  as  Revenue  losses  what  should  have  been 
Capital  expenditures,  though  this  is  equally  reprehensible  from  an 
accounting  standpoint. 


CHAPTER  XXIV 


COLUMNAR  BOOKS 


A  NOTICEABLE  feature  in  a  study  of  accounting  is  the  gradual 
evolution  of  principles  and  the  possibilities  of  general  application 
which  the  elasticity  of  these  principles  permits. 

The  keystone  of  our  accounting  structure  is  the  rule  of  debit 
and  credit,  and  we  have  seen  that  its  use  is  in  no  way  restricted  to 
the  general  Journal,  but  is  equally  effective  in  its  operation  on  the 
divisions  of  that  book  —  viz.  the  Purchase  Book,  Sales  Book,  Cash 
Book,  and  Bill  Book. 

The  efficiency  of  specialization  has  not  been  overlooked  in  the 
science  of  accounting,  and  it  has  been  found  that  the  actual  mechan- 
ical work  of  recording  transactions  can  be  greatly  facilitated  by  a 
further  division  in  the  above-named  books  themselves.  This  method 
has  been  carried  also  to  the  general  Ledger.  Just  as  purchases  and 
sales  were  segregated,  so  the  parties  involved  in  these  transactions 
have  been  taken  out  of  the  Ledger  and  grouped  in  two  general 
classes  and  kept  in  separate  books  or  separate  parts  of  the  same  book, 
viz.  the  Creditors'  Ledger^  —  containing  the  accounts  with  all  the 
creditors  of  the  business,  —  and  likewise  a  book  for  the  customers' 
accounts,  called  the  Customers'  Ledger.  The  remaining  accounts, 
property,  nominal,  etc.,  continue  in  the  general  Ledger.  The  ques- 
tion naturally  arises  as  to  the  effect  on  this  book  of  removing  from 
it  all  these  accounts,  and  the  apparent  impossibility  of  testing  its 
equilibrium  by  a  Trial  Balance.  But  provision  has  been  made  for 
this  by  what  are  known  as  Controlling  Accounts,  i.e,  accounts  in  the 
general  Ledger  whose  balances  control  or  summarize  the  balances  in 
the  subsidiary  Ledger  or  Ledgers.  Thus,  the  Creditors'  Controlling 
Account  (or  Accounts  Payable  Account,  as  we  shall  term  it)  indi- 
cates by  its  balance  the  total  balances  of  all  the  creditors'  accounts 
in  the  subsidiary  Creditors'  Ledger ;  and  similarly  the  Customers' 
Controlling  Account  (to  be  known  as  Accounts  Receivable)  sum- 
marizes in  its  balance  the  balances  of  all  the  customers'  accounts  in 
the  subsidiary  Customers'  Ledger. 

161 


162     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Purchase  Book 


Datk 


L. 
F. 


May 


Name  or  Crkditok 


Mineral  Sup- 
ply Co. 

City  Improve- 
ment Co. 


For  "What 


5000  lb.  Copper®  II  .13 

100  pigs  Iron  .75 

75  lb.  Zinc  .06 

Real  Estate 


Amoitnt 
Ckkdit 


729 


20000 


Sand 


50 
00 


Coke 


COPPEB 


650 


COLUMNAR  BOOKS 


Purchase  Book 


163 


Oil 


00 


Iron 


75 


00 


ZiNO 


50 


Coal 


Phos- 
phorus 


Sundries 


Account 


Real  Estate 


Amoant 


L. 
F. 


20000 


00 


i^ 


164     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

In  discussing  the  Ledgers  first  in  the  treatment  of  Columnar 
Books,  the  customary  explanation  of  a  set  of  books  is  reversed ;  but 
it  is  in  posting  that  these  books  have  their  greatest  effectiveness,  as 
will  be  divined  from  the  definition  and  the  illustrations  to  follow. 

Coltunnar  Books  are  books  of  original  entry  consisting  of  a  series 
of  parallel  columns,  the  titles  of  which  are  General  Ledger  Accounts. 

Books  Used.  —  The  books  of  original  entry  used  are  : 

1.  Purchase  Book.      3.  Cash  Book.  5.    Bill  Book. 

2.  Sales  Book.  4.  PettyCash  Book.       6.  General  Journal. 

It  will  be  noted  that  with  the  exception  of  the  Petty  Cash  Book, 
to  be  explained  in  a  later  paragraph,  they  are  identical  with  those 
already  used,  not  only  similar  in  name,  but  also  in  purpose.  The 
sole  difference  is  in  their  operation. 

Take  for  instance  the  Purchase  Book.  Instead  of  having  one 
column  for  the  merchandise  debit  as  formerly,  the  merchandise  now 
consists  of  a  number  of  commodities,  all  of  which  are  debits  ;  and 
are  indicated  by  several  parallel  columns  used  for  sand,  coke, 
copper,  etc.,  the  corresponding  credits  being  found  in  the  "  amount 
credit "  column  opposite  the  creditor's  name.  Thus,  the  first  entry 
in  the  illustrative  Purchase  Journal  is  as  follows : 

Bought  of  the  Mineral  Supply  Co. : 

50001b.  Copper  @|!.13 

100  pigs  Iron  .75 

75  lb.  Zinc  .06 

Expressing  it  in  the  form  of  a  Journal  entry  it  is : 

Copper  ^650.00 

Iron  75.00 

Zinc  4.50 

Mineral  Supply  Company 

(Creditor)  f  729.50 

Any  number  of  purchases  are  recorded  in  the  same  manner,  so 
that  when  the  time  comes  to  post,  instead  of  posting  each  purchase 
of  iron,  zinc,  copper,  etc.,  to  the  debit  of  their  respective  accounts, 
the  columns  are  totaled  and  the  amounts  posted  to  the  General 
Ledger.  In  order  that  these  may  have  their  corresponding  credit 
in  that  book  the  column  "amount  credit"  is  totaled.  This  is  the 
total  amount  purchased  from  all  the  creditors,  and  is  posted  to  the 
credit  of   "Accounts   Payable   Account"   in   the   General   Ledger 


COLUMNAR  BOOKS 


165 


which  is  the  Controlling  Account  of  the  Creditors'  Ledger.  As 
each  creditor,  as  found  in  the  "Name  of  Creditor"  column,  is 
credited  in  his  account  in  the  Creditors'  Ledger  with  the  amount 
opposite  his  name  in  the  "Amount  Credit"  column,  the  sum  of  all 
these  credits  necessarily  equals  the  amount  posted  to  the  credit  of 
the  Accounts  Payable  Account  in  the  General  Ledger  ;  hence,  the 
control.  The  number  of  the  Ledger  page  on  which  the  creditor's 
account  appears  is  noted  in  the  Folio  column. 

Summary  Entry.  —  The  posting  of  a  book  of  original  entry  to  the 
General  Ledger  may  be  accomplished  by  a  summary  entry,  a  Journal 
entry  made  at  the  base  of  the  book  about  to  be  posted,  comprising  a 
list  of  the  totals  of  the  debit  and  credit  columns.  Thus,  the  sum- 
mary entry  of  our  Purchase  Book  is  : 

Sand 
Coke 
Copper 
Oil 
Iron,  etc. 

Accounts  Payable  (Amount  Credit  Column) 

All  these  accounts  are  posted  to  the  General  Ledger,  and,  as  was 
explained  before,  the  amount  credited  to  "Accounts  Payable" 
Account  in  the  General  Ledger  equals  the  sum  of  the  individual 
credits  to  the  Creditors'  Ledger.  The  summary  entry  serves  the 
additional  purpose  of  showing  whether  the  book  of  original  entry 
is  in  balance. 

Sundries.  —  The  columns  marked  "  Sundries  "  take  care  of  those 
miscellaneous  items  whose  infrequent  purchase  or  unimportance 
does  not  warrant  the  ruling  of  separate  columns.  But  each  account 
therein,  being  in  substance  a  debit  columnar  heading,  is  posted 
individually  to  its  account  in  the  General  Ledger  and  is  included 
in  the  summary  entry  with  the  other  debit  entries. 

Thus  the  second  entry  in  the  illustration  is  : 

Purchased  real  estate  for  $20,000.00  from  the  City  Improve- 
ment Company. 

The  Purchase  Book  is  used  to  record  all  purchases  of  the 
business,  whether  on  account,  by  cash,  or  by  note.  If  on  account, 
it  appears  only  in  the  Purchase  Book  ;  if  for  cash,  in  the  Cash  Book 
and  Purchase  Book  ;  and  if  by  note,  in  the  Bill  Book  (or  if  not 
used,  in  the  General  Journal)  and  the  Purchase  Book. 


166     A  FIRST   YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


V, 

t 

3 


o 
o 

n 

CO 

I 


as 

o 
o 
o 

< 


Q 
M 
M 


SS 

fag 

n 


OD 

«  (3 

fi- 
ns 


8 


o 


ct  ^ 


o 


c 
•*« 

IS 

« 

a 
o 


oo 


S 


8 
e: 


0. 
M 


'  '  i 


M 


h 
O 

H 


B 

CO 

1 


^ 
^ 


I 


C4 


6* 


COLUMNAR  BOOKS 


167 


•8 

I 


o 

o 

«  be 

12 

s 

e: 

a 

s 

1 

o 

tomers* 
edger 

§ 

s 

u 

O   »f3 

«* 

lO    <M 

0 

flfi 

M 

Q 

1 

Q   O 

l^    OS 

Vi^ 

><*<  '^ 

• 

^ 

K 

i^ 

O 

.s  « 

■< 

s  -»* 

4 

Ol    ^ 

P 

°1 

•  »^      H 

'^  s 

o 

•1^    a 

48   "^ 

£  Q 

o 

1* 

>-H 

B 

.JQ 

1 

.    eS 

r 

4 

' 

Salem 
Receiv 

1?  « 

£  J 

a   o 

<^ 

ki 

/'^/-N 

fH    <N 

»4 

^^  Nm' 

1 

CO   «D 

►> 

1 

1 

fr 


168     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


H 


2  * 


§s§ 


CO   (M   00    lO 


c  « 


8 
u 

I 


S 
9 
O 

g 


3 


III 


o 

H 


I 


I 


5 


8g 


C5 


<M 


00 


50 
CO 


(M 


o  o  o  o 
o  o  o  o 


s 
s 


CO  o  CO  oi  00 


00     ao 
S     S 


»      00      > 

O     O  'O   -*^ 


-s  -s  -^  -^ 

ao  00  00  OR 

^  A  A  CB 

u  o  o  o 


no    --3 
PL)  a^ 


o 


««  ^  ^  ^ 

^  ^  pui  Ph 

s  s  s  s 

o  o  o  o 

iM  &K  ;^  (i 

P^  pbi  U«  Pm 


o 

^  o 

S  ^ 

S  ^ 

> 

6-3  5 

1-^  t- 


^ 
3  ^ 


.s 
£ 

S 
e3 

a 


09 


a 
5 


bo 

O  S  &4  CO  CU  C  fo 


^^    -M    CO    •^    »0    ®    t>. 


»  l>.  1-1 

CO 


6* 


COLUMNAR  BOOKS 


169 


Sales  Book.  —  The  Sales  Book  in  its  operation  is  in  all  respects 
similar  to  the  Purchase  Book.  The  merchandise  sales  are  divided 
into  various  classifications  by  devoting  a  separate  column  to  each. 
Instead  of  the  one  credit  column,  there  are  several,  as  in  the  illustra- 
tion, used  for  iron  castings,  sand  blast  castings,  etc.,  the  customer 
being  debited  in  each  instance  with  the  total  amount  of  his  purchase 
as  shown  in  the  "Amount  Debit"  column.     To  illustrate: 

May  2,  1913.     Sold  to  Alfred  Salem: 

Iron  Castings  $8.50 

Sand  Blast  Castings  11.50 

Brass  Castings  30.00 

Alfred  Salem  is  debited  and  the  various  commodities  credited,  so 
that  a  repeated  number  of  similar  transactions  can  be  posted  to  the 
General  Ledger  by  again  totaling  the  columns  and  having  this 
summary  entry; 

Accounts  Receivable  (Amount  debit) 
Iron  Castings 
Sand  Blast  Castings 
Brass  Castings 
Phosphorus  Bronze  Castings 

The  customers  are  individually  debited  in  the  Customers'  Ledger. 

The  Sales  Book  is  used  to  record  all  sales  of  the  business,  irre- 
spective of  the  terms. 

The  Cash  Book  is  a  duplication  of  the  older  and  simpler  form, 
with  additional  oolumnj  to  indicate  to  which  Ledger  the  account 
should  be  posted.  The  "  Net  Cash  "  column  on  the  debit  side  of  the 
book  handles  the  cash  coming  in,  less  any  discount  (also  debit) ;  and 
the  account  appearing  in  the  Account  Column  is  credited  by  extend- 
ing it  in  the  Customer's  Ledger  Column  or  General  Ledger  Column, 
according  to  whether  it  is  a  Customer's  or  General  Ledger  Account. 

May  6.  Alfred  Salem  pays  his  bill  of  the  2d  inst.,  less  5  %  dis- 
count.    To  journalize  this  we  have  : 

Cash  $47.60 

Discount  2.50 

Alfred  Salem  $  50. 00 

The  Cash  Book  entry,  as  will  be  noted,  is  similar,  the  several 
columns  being  used  for  the  debit  and  credit. 


170     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


COLUMNAR  BOOKS 


171 


A  thirty -day  note  for  $50  is  discounted  at  bank  the  same  day, 
the  entry  for  which  is  shown  in  illustration  (2).  When  we  are  ready 
to  post,  we  add  the  columns  and  make  the  following  summary  entry : 

Cash 
Discount 

Accounts  Receivable 

General  Ledger  (posted) 

The  discount  column  is  here  used  for  both  bank  discount  and 
merchandise  discount.  If  sufficient  items  of  both  were  to  occur  in 
the  business,  it  would  be  advisable  to  open  separate  columns.  In 
the  illustration  the  merchandise  discount  is  indicated  by  "M." 

There  is  no  account  in  the  General  Ledger  as  "  General  Ledger 
Account,"  and  it  is  used  in  the  summary  entry  because  it  is  necessary 
to  its  equilibrium.  The  items  of  which  it  is  composed  are  the 
accounts  already  in  the  General  Ledger,  which  are  posted  individu- 
ally from  the  Account  column  of  the  Cash  Book.  All  the  accounts 
appearing  therein  are  posted  as  credits  either  in  the  Customers' 
Ledger  or  General  Ledger. 

To  illustrate  the  credit  side  of  the  Cash  Book,  suppose  we  pay 
the  City  Improvement  Co.  for  the  real  estate  purchased  on  May  1. 

Suppose  we  pay  the  Mineral  Supply  Co.,  less  5  %  discount. 

The  summary  entry  for  this  side  of  the  book  is  : 

Accounts  Payable 
General  Ledger  (posted) 

Cash 

Discount 

Petty  Cash  Book.  —  The  name  of  this  book  indicates  its  principal 
use,  i.e.  the  handling  of  petty  cash  items,  cash  drawer  expenditures 
too  small  and  too  numerous  to  be  handled  in  the  general  Cash  Book. 
Very  often  it  is  not  used  as  a  book  of  original  entry,  but  merely  as 
a  book  auxiliary  to  the  general  Cash  Book  ;  in  either  case  it  is  noth- 
ing more  nor  less  than  a  record  of  "  cash  drawer  "  transactions,  col- 
umnized  for  convenience.  The  book  consists  of  two  distinct  parts, 
the  first  two  columns  to  record  the  date  and  amount  of  receipts,  and 
the  rest  of  the  book  to  handle  the  expenditures. 

Thus,  on  May  7,^50.00  is  put  into  the  Cash  Drawer.  It  is 
entered  on  the  credit  side  of  the  Cash  Book,  charged  to  Petty  Cash 
(3),  and  at  the  same  time  entered  in  the  receipts  column  of  the  Petty 
Cash  Book  (1). 


I 


if 


Factory 
Expense 

88 

I 

O 

»o 

• 

ffice 
pens 

Om 

W 

table 
pense 

*W 

a 

M 
Pi 

9£ 

§ 

8           1 

eft 

00 

00 

Os 

00 

f 

8 

8 

(M 

<M 

O 

0^ 

tionery 
Printing 

8 

8 

CO 

OO 

3^ 

tn  G 

OS 

5l 

888 

8  •§ 

§ 

sss 

\a  CO  lo 

CO        O 

00 

iS 

tH       \o 

«> 

.  B 

«  « 

®    oT 

o 

e 

^ 

it 

a 

M 

PriE 
ber  b 
dow 

Bala 

-d 

H 

-g  ^  a 

»H 

"S  3  IT" 

« 

^ 

(M    CO    Tl* 

•-} 

\^  '^^   S^' 

00 

IS 

< 

>» 

Q 

s 

88 

8 

SS 

S 

£ 

< 

/-\  /r^ 

1-H    »0 

S-/  N«^ 

t>    rH                                            iH 

P4 

1 

CO 

1 

1 

i 


t 

] 


!i 


172     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

May  8.    The  following  expenditures  are  made  (2)  : 

$2.00  for  postage 
$3.00  for  printing 

May  9.    Purchase  sundry  office  supplies,  $8.00  (3). 

May  25.    Have  the  windows  in  the  factory  cleaned,  $5.00  (4). 

The  above  entries  are  made  as  indicated  in  the  illustration. 

Imprest  System.  —  If  the  book  is  handled  as  an  auxiliary  book  to 
the  Cash  Book,  and  not  as  a  book  of  original  entry,  what  is  kno\vn 
as  the  Imprest  System  of  posting  must  be  used,  viz.  to  impress  or 
transfer  on  our  Cash  Book  the  entries  as  made  on  the  Petty  Cash 
Book.  This  makes  it  a  collector  of  petty  items  for  the  period,  to  be 
transferred  in  total  to  the  Cash  Book  at  the  end  of  the  period. 
Thus,  in  the  illustration  on  the  credit  side  of  the  Cash  Book  the 
accounts  "  Stationery  and  Printing  "  (4),  "  Postage  "  (5),  **  Office 
Supplies  "  (6),  and  "  Factory  Expense  "  (7),  are  charged  with  their 
respective  amounts  of  cash  as  appearing  in  the  Petty  Cash  Book. 
But  these  items  have  already  been  paid  from  the  cash  drawer,  and 
being  recorded  in  both  books,  it  appears  that  they  have  been  paid 
twice.  Therefore,  the  cash  drawer  must  be  reimbursed  for  the 
amount  expended,  $18.00,  and  the  Cash  Book  having  now  absorbed 
these  accounts,  w^e  regain  the  original  Petty  Cash  Book  balance  by 
entering  the  $18.00  in  the  receipt  column  (5)  and  balance  as  shown. 

Petty  Cash  Book  as  a  Book  of  Original  Entry.  —  By  treating  it  as 

a  book  of  original  entry,  a  summary  entry  may  be  made  as  in  the 

other  books  and   posted   direct  to   the   accounts  in   the    General 
Ledger,  thus: 

Stationery  and  Printing 
Postage 
Office  Supplies 
Factory  Expense,  etc. 
Petty  Cash 

Voucher  System.  —  There  is  a  third  system  of  handling  petty  cash 
which  is  known  as  the  "  Voucher  System."  A  definite  amount  of 
cash  is  placed  in  the  cash  drawer,  say  $100.00,  of  which  no  record 
is  made,  not  even  in  the  Cash  Book  itself. 

For  every  expenditure  of  petty  cash  there  must  be  an  original 
voucher,  signed  by  the  manager,  or  some  one  in  charge,  authorizing 
the  payment  and  showing  the  reason  for  it,  or  the  account  to  be 
charged.     Whenever  cash  is  balanced,  there  must  be  in  the  cash 


COLUMNAR  BOOKS 


173 


drawer  either  $100.00  in  the  form  of  cash,  or  vouchers  to  that 
amount.  When  it  is  desired  to  post,  the  vouchers  are  classified  as 
to  accounts,  and  the  total  expenditures  for  the  various  accounts  are 
listed  on  the  credit  side  of  the  Cash  Book,  exactly  as  is  done  through 
the  Imprest  System.  The  Voucher  System  may  be  used  with  or 
without  a  Petty  Cash  Book,  and  the  posting  or  charging  of  the 
accounts  may  be  accomplished  either  from  the  vouchers  themselves, 
as  explained,  or  from  the  Petty  Cash  Book  by  the  "  Original  Entry  " 
method. 

A  Bill  Book  similar  to  the  one  explained  earlier  in  the  book  may 
be  used  in  a  Columnar  Set  as  a  book  of  original  entry,  but  in  the 
problems  given  the  notes  receivable  and  notes  payable  are  recorded 
in  the  General  Journal,  and  the  Bill  Book  is  used  only  as  auxiliary. 

General  Journal.  — The  debit  and  credit  columns  of  the  General 
Journal  are  subdivided  in  each  instance  into  columns  for  Creditors, 
Customers,  and  General  Ledger  Accounts.  It  has  come  to  be  used 
for  notes,  drafts,  adjustment,  and  closing  entries,  and  therefore  nec- 
essarily deals  with  the  three  classes  of  accounts. 

Thus,  when  Salem  on  May  6  gives  his  30-day  note  in  payment 
of  his  bill  of  the  2d  instant,  the  entry  in  the  Journal  is  made  by 
debiting  Notes  Receivable  on  the  left  of  the  page  in  the  General 
Ledger  Column  and  crediting  Alfred  Salem  on  the  right-hand  side 
of  the  page  in  the  Customers'  Ledger  column. 

At  the  end  of  the  period  these  several  columns  are  totaled  and 
the  summary  entry  made  as  follows : 

Accounts  Payable 
Accounts  Receivable 
General  Ledger  (posted) 

General  Ledger  (posted) 
Accounts  Receivable 
Accounts  Payable 

As  a  result  of  the  use  of  these  summary  entries  in  the  several 
books,  it  is  possible  to  strike  off  a  complete  Trial  Balance  from  the 
General  Ledger  without  reference  to  the  subsidiary  Ledgers.  This 
is,  of  course,  only  possible  because  of  the  columnar  totals  making  up 
the  summary  entry,  and  it  is  these  columns  which  facilitate  the  work 
of  the  bookkeeper  by  avoiding,  a  constant  repetition  in  journalizing. 
The  posting  of  the  General  Ledger  debits  and  credits  from  the  vari- 
ous books  has  been  illustrated  by  means  of  the  summary  entries,  but 


174     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


COLUMNAR  BOOKS 


175 


i 


I 


f 


■ 


t 

a 

H 

M 


**  be 


it  will  be  readily  seen  that  a  summary  entry  need  not  be  made,  and 
in  fact  seldom  is  made,  the  postings  being  made  direct  from  the  col- 
umn totals. 

For  "Columnar  Books"  problems  see  "Principal  Problems'*  II 
and  III,  at  the  end  of  the  book. 


8 


2 


CO 


I 

•< 


M 

O 


n 

H 


•if) 
ll 


g 


b  - 

I 


S 


s 


IS 


S  e 

12 


REVENUE  ACCOUNTS 


177 


i 


CHAPTER   XXV 

REVENUE  ACCOUNTS 

Profit  and  Loss  Account.  —  We  have  learned  that  one  of  the  chief 
purposes  of  bookkeeping  is  to  ascertain  the  profit  or  loss  of  a  busi- 
ness and  the  sources  of  such  profit  or  loss.  Further,  that  the  Profit 
and  Loss  Account  reflects  in  its  balance  a  summary  of  the  balances 
of  all  the  nominal  accounts  in  the  Ledger.  Therefore,  for  all  ordi- 
nary purposes  it  seems  that  this  account  itself  should  give  us  the 
desired  information. 

Insufficiency  of  the  Profit  and  Loss  Account  —  On  account  of  the 
increasing  complexity  of  business  enterprise,  however,  comprising 
in  its  many  details  the  development  of  a  product  through  all  its 
processes  from  department  to  department,  it  becomes  imperative  that 
the  proprietor  be  apprised  of  the  costs  and  profits  of  his  various 
departments  in  greater  detail  than  the  one  Profit  and  Loss  Account 
affords.  If  he  would  conduct  his  business  intelligently,  he  must 
know : 

1.  The  volume  of  business  transacted  in  each  department. 

2.  The  expenses  involved  in  each  department. 

3.  The  proceeds  of  the  individual  departments. 

4.  Those  general  expenses  which  cannot  be  directly  applied  to 

any  of  the  departments. 

5.  The  net  result  of  the  operation  of  his  plant  as  a  whole. 

Not  that  this  information  is  not  available  in  a  Profit  and  Loss 
Account.  But  it  is  necessary  to  separate  firat  the  numerous  items 
under  Profit  and  Loss  and  classify  them  under  their  proper  headings, 
to  arrive  at  any  intelligent  result.  Why  not  classify  them  in  the 
first  place  and  avoid  this  unnecessary  confusion?  This  may  be 
accomplished  by  disintegrating  what  we  know  as  the  Profit  and 
Loss  Account,  comprising  the  Revenue  facts  of  a  business,  into  such 
component  parts  as  the  particular  needs  may  dictate. 

Let  us  take  as  the  hypothesis  a  large  business  engaged  in  the 
manufacture  of  a  class  of  goods  involving  an  expensive  plant,  where 
the  Factory,  Sales  Room,  and  Executive  Offices  occupy  the  same  build- 

176 


ing.     It  is  desired  by  the  managers  to  have  authentic  information 
of  the  costs  and  proceeds  of  each  department.     We  therefore  open : 

1.  Manufacturing  Account. 

2.  Trading  Account. 

3.  Administration  Account. 

4.  Profit  and  Loss  Account. 

The  following  are  pro  forma  outlines  of  these  accounts : 

Manufacturing  Account 


Opening  Inventory 

Raw  Materials 

Goods  in  Process 

Finished  Goods 
Purchase  of  Materials 
Unproductive  Labor 
Packages 
Productive  Labor 
Fuel 

Heat,  Light,  and  Power 
Water 

Repairs  to  Machinery  and  Tools 
Repairs  to  Buildings 
General  Repairs 
Factory  Expense 
Insurance 
Taxes 

Freight  (Factory  Material) 
Cartage  (Factory  Material) 
Reserve  Accounts 
Accrued  Mfg.  Expenses 


Closing  Inventory 
Raw  Materials 
Goods  in  Process 
Finished  Goods 
Stocks  of  Fuel,  etc. 
Discounts  on  Purchases 
Balance 

(Being  the  cost  of  the  manufactured 
goods  sold  and  carried  to  the 
debit  side  of  the  Trading  Ac- 
count) 


Trading  Account 


Balance  (from  Manufacturing) 
Discounts  on  Sales 
Reserve  for  Discounts  on  Sales 
Salesmen's  Salaries  and  Expenses 
Advertising 
Freight 
Cartage 

Reserves  and  Repairs  (applying  to  Trad- 
ing) 
Balance  (being  the  Gross  Trading  Profit 

carried  to  credit  of  Profit  and  Loss 
Account) 


Outbound 


Sales  (less  Returns  and  Allowances) 


11 


it 


♦ 


178     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Administration  Account 


Salaries  of  Officers  and  Clerks 

Bonding  of  Employees 

Office  Expense 

Greneral  Expense 

Postage 

Stationery  and  Printing 

Telephone 

Reserve  for  Depreciation  of  Office  Furni- 
ture 


Balance  (carried  to  debit  side  of  Profit 
and  Loss  Account) 


Profit  and  Loss  Account 


Balance  from  Administration  Account 

Interest  on  Bonds 

Charities 

Bad  Debts 

Reserve  for  Bad  Debts 

Bank  Discount 

Extraordinary  Losses 

Proprietor 
or 

Dividends 

Surplus 


Balance  from  Trading  Account 

Rentals 

Interest  (earned) 


Balance  < 


By  reference  to  the  illustration  it  is  seen  that  the  accounts  have 
been  grouped  according  to  the  department  to  which  they  are  most 
intimately  related.  Thus,  just  as  Merchandise  was  charged  in  the 
earlier  problems  with  freight,  in  order  to  ascertain  the  cost  of  the 
goods,  so  here  the  Manufacturing  Account  is  charged  with  the  mer- 
chandise. It  is  logical  in  order  to  find  the  cost  of  the  manufactured 
goods  sold  to  ascertain  first  the  material  on  hand,  plus  additional 
purchases  and  additional  cost  of  manufacturing,  as  exhibited  by  the 
debits  to  our  account ;  and  after  deducting  the  discount  on  pur- 
chases, subtract  the  material  on  hand  (raw,  in  process,  and  finished) 
on  the  credit  side  of  the  account. 

If  we  take  the  finished  goods  entirely  from  the  manufacturing 
department  and  do  not  include  this  inventory  in  manufacturing,  that 
account  then  shows  the  cost  of  manufacturing  the  goods,  both  sold 
and  unsold  ;  or  in  other  words,  the  cost  of  all  the  goods  manufactured. 

Trading.  —  By  charging  Trading  Account  with  the  cost  of  manu- 


REVENUE  ACCOUNTS 


179 


facturing  the  goods  sold,  together  with  the  appropriate  departmental 
costs,  we  can,  by  deducting  this  total  from  the  sales  less  returns 
and  allowances,  ascertain  the  gross  trading  profit.  This  profit  is 
naturally  the  chief  item  appearing  on  the  credit  side  of  the  Profit 
and  Loss  Account,  and  is  offset  by  such  revenue  losses  as  cannot  be 
properly  allocated   to  the  other  accounts,  examples  of  which  are 

given  above. 

The  Administration  Account  is  more  essentially  a  subheading 
to  the  Profit  and  Loss  Account  than  the  other  two.  It  handles  only 
those  expenses  which  occur  in  the  management  of  the  business  as  a 
whole,  and  its  balance  is  carried  directly  to  Profit  and  Loss. 

Throughout  these  accounts  there  appear  certain  items,  the  proper 
classification  of  which  present  problems  not  easy  of  solution.  Their 
treatment  varies  with  the  thought  of  the  accountant  in  charge.  A 
few  of  them  are : 

1.  Shall  rents  received  from  leasing  a  part  of  the  factory  be 

crediting  to  Manufacturing,  or  to  Profit  and  Loss  ? 

2.  Shall  taxes,  if  on  the  factory,  be  charged  to  Manufacturing, 

or  direct  to  Profit  and  Loss  as  a  reduction  of  net  earnings  ? 

3.  Similarly,  the  Reserves  for  Depreciation. 

We  mention  these  only  as  an  example  of  what  must  be  considered 
in  treating  Revenue  Accounts. 

It  is  understood,  of  course,  that  the  pro  forma  outlines  given 
include  the  accounts  actually  appearing  in  the  Ledger,  which  have 
been  previously  closed  into  Manufacturing,  Trading,  Administration, 
and  Profit  and  Loss  by  Journal  entry.     Thus : 


Inventory 


Manufacturing 


Raw  Materials 

r 

Inventory 

Purchases 

Unproductive  Labor 

Packages 

Productive  Labor 

Fuel 

Heat,  Light,  and  Power 

Water 

Repairs  to  Machinery  and  Tools 

Repairs  to  Buildings 


\' 


( 


180     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

General  Repairs 

Factory  Expense 

Insurance 

Taxes 

Freight 

Cartage 

Reserve  Accounts 

Expense  Accruals 

Discount  on  Purchases 
Goods  in  Process 
Finished  Goods 


Trading 


Manufacturing 

Discount  on  Sales 

Reserve  for  Discount  on  Sales 

Salesmen's  Salaries  and  Expenses 

Advertising 

Freight 

Cartage 

Reserves 

Repairs  (Trading) 


Sales 


Trading 


i* 


Administration 


Clerks'  Accounts 

Officers'  Accounts 

Bonding 

Office  Expenses 

General  Expense 

Postage 

Stationery  and  Printing 

Telephone 

Reserve  for  Depreciation  for  Office  Furniture 


Profit  and  Loss 


! 


'i 


Administration 
Interest  on  Bonds 
Charities 
Bad  Debts 


REVENUE  ACCOUNTS 

Reserve  for  Bad  Debts 
Bank  Discount 
Extraordinary  Losses 


181 


Trading 

Rentals 

Interest 


Profit  and  Loss 


Profit  and  Loss 

Proprietor 
Dividends 
Surplus 

It  will  be  seen  that  the  subject  of  Revenue  Accounts  has  to  do 
with  the  closing  of  a  set  of  books  and  is  but  an  elaboration  of  our 
previous  chapter  on  that  subject,  with  this  difference,  that,  instead  of 
one  general  Profit  and  Loss  Account,  we  may  have  as  many  as  the 
requirements  of  the  particular  business  dictate. 

One  of  the  most  interesting  features  of  Revenue  Accounts  is  the 
handling  of  the  inventories.  There  are  two  general  methods.  The 
first  is  to  close  out  the  Inventory  Account  at  the  beginning  of  the 
year,  together  with  the  totals  of  the  various  material  accounts,  by 
charging  them  to  Manufacturing  and  crediting  Manufacturing  with 
the  inventory  at  the  close  of  the  period.  The  second  method  presup- 
poses that  the  inventory  at  the  beginning  of  the  year  has  been  closed 
into  the  material  accounts  themselves,  and  thus  at  the  time  of  clos- 
ing we  need  only  consider  the  final  inventory.  This  is  placed  on 
the  books  by  a  debit  to  Inventory  and  a  credit  to  the  various  material 
accounts  and  the  balance  of  these  accounts  now  represents  the  amount 
consumed  during  the  period,  and  is  closed  into  manufacturing. 

Problems  39  to  42,  on  Revenue  Accounts,  have  been  taken  from 
the  questions  of  the  various  State  Examinations  for  applicants  for 
the  degree  of  Certified  Public  Accountant. 

The  problems  have  not  been  quoted  exact,  verbal  changes  having 
been  made  in  the  presentation  of  the  problems. 

PROBLEM  89 

The  Trial  Balance  of  the  Vincent  Manufacturing  Co.,  as  of 
Dec.  31, 1906,  is  given  below.  Inventory,  Dec.  31, 1906,  $90,000.00. 
Prepare  Manufacturing,  Trading,  and  Profit  and  Loss  Accounts,  and 
Balance  Sheet. 


•  a 


»■■ 


182     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


It 


i 


m 


Trial  Balance 

Discounts,  trade 

40:30 

00 

Entertainment  of  Customers 

2000 

00 

Machinery  Inventory,  Dec.  31,  1906 

40000 

00 

Tools  Inventory,  Dec.  31,  1906 

8500 

00 

Patents  Inventory,  Dec.  31,  1906 

21000 

00 

Patterns  Inventory,  Dec.  31,  1906 

12400 

00 

Purchases 

410000 

00 

Notes  Receivable 

3050 

00 

Accounts  Receivable 

250000 

00 

Insurance : 

Machinery,  Tools  and  Patterns 

500 

00 

Merchandise 

650 

00 

Employees'  Liability  Premiums 

4000 

00 

Taxes,  Personal  Property 

1000 

00 

Interest,  General 

4470 

00 

Cash 

45000 

00 

Labor,  productive 

300(K)0 

00 

Labor,  unproductive 

35000 

00 

Power 

21000 

00 

Repairs,  Machinery 

1310 

00 

Factory  Expense 

3010 

00 

Office  Payroll 

18000 

00 

Inventory,  Jan.  1,  1906 

75000 

00 

Merchandise  Sales 

1048500 

00 

Allowances 

10900 

00 

Office  Furniture  and  Fixtures 

5700 

00 

Salaries,  Officers 

15000 

00 

Postage 

2000 

00 

Telegraph  and  Telephone 

1800 

00 

Collection  and  Exchange 

700 

00 

Stationery  and  Printing 

3050 

00 

Freight  in 

23000 

00 

Freight  out 

10000 

00 

Cartage  and  Express  in 

3750 

00 

Bonding  of  Employees  (Office) 

250 

00 

Traveling  Expenses  (Salesmen) 

17500 

00 

Salesmen's  Commission  and  Salaries 

40000 

00 

Notes  Payable 

99050 

00 

Accounts  Payable 

43000 

00 

Surplus 

43520 

00 

Capital  Stock 

200000 

00 

Director's  Fees 

1500 

00 

Cartage  out 

4300 

00 

Discounts,  trade 

6300 

00 

Return  Sales  Account 

41000 

00 

1440370 

00 

1440370 

00 

REVENUE  ACCOUNTS 


183 


PROBLEM  40 

This  Trial  Balance  is  taken  from  the  Ledger  of  Johnson  &  Williams, 
as  of  Dec.  31,  1910. 

Trial  Balance 


i! 


Advertising 

Cartage 

Wages 

Stationery  and  Printing 

Cash 

Tools 

Furniture  and  Fixtures 

Salesmen's  Sal.  and  Exp. 

Clerks'  Salaries 

Raw  Materials  Purchased 

Discount  on  Purchases 

Accounts  Receivable 

Accounts  Payable 

Sales,  Finished  Goods 

Machinery 

Rents  Paid 

Discounts  on  Sales 

Power  and  Light 

Bank  Discounts 

Johnson 

Williams 


735 

250 

3761 

176 

1463 

225 

390 

3271 

1684 

7500 

2760 


9430 

592 

98 

675 

30 


33041 


60 
00 
25 
00 
00 
00 
00 
68 
00 
00 

00 


00 
00 
33 
00 
00 


86 


49 

1579 
19326 


5550 
6536 


33041 


67 

00 
42 


00 

77_ 
86 


Write  off  15%  on  Accounts  Receivable  for  Reserve  for  Bad 
Debts.  Depreciation  on  Machinery  7  %,  on  Furniture  and  Fixtures 
20%,  on  Tools  12%.  Rents  paid,  25%  Office,  75%  Factory. 
Cartage  $115.00  on  outgoing  goods.  Cartage  tf  135.00  on  incoming 
goods.  Inventory,  Finished  Goods  $1461.32,  Inventory,  Raw 
Material  $729.55. 

From  the  above  data  prepare  Manufacturing,  Trading,  and  Profit 
and  Loss  Accounts,  and  final  Balance  Sheet,  apportioning  the  Profit 
and  Loss  between  the  partners  in  the  proportion  of  50  %  to  Johnson 
and  50  %  to  Williams. 

PROBLEM  41 

From  the  following  Trial  Balance  of  the  Excelsior  Ribbon  Com- 
pany prepare  closing  Journal  entries  as  of  June  30,  1911,  keeping  in 
mind  the  fact  that  the  company  uses  Manufacturing,  Trading,  and 


184     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Profit  and  Loss  Accounts.     Also  prepare  a  final  Balance  Sheet  as  of 
that  date. 

Trial  Balance 


-ft 


;  ■  •  '3 


m 


I 


Capital  Stock 

Preferred,  250  shares  at  8100.00 

Common,  300  shares  at  $100.00 
Machinery 

Inventory,  Dec.  31,  1910 
Accounts  Receivable 
Materials  Purchased 

Silk  (raw,  spun,  and  thrown) 

Ribbon  Paper,  boxes,  labels,  etc. 
Labor 

Weaving 

Throwing 

Dyeing 

Warping,  winding,  etc. 

Fixing  and  preparing  looms 
Sales  of  ribbon,  less  returns 
Sales,  Miscellaneous 
Discounts  on  Purchases 
Profit  and  Loss  —  Surplus  —  Dec.  31,  1910 
Greneral  Expenses 

Salaries,  officers  and  clerk 

Engineers,  etc, 

Rent  of  Mill 

Commissions 

Fuel,  Lighting,  etc. 

Other  expenses  (including  Ins.,  9285.00) 
Notes  Payable 
Interest  on  Notes  Payable 
Accounts  Payable 
Cash  in  Bank 
Cash  in  Safe 


24500 
78620 
63428 

124326 
3728 

29384 
10976 

8563 
15721 

1270 


00 
15 
30 

80 
05 

07 
25 
43 
18 
60 


25000 
30000 


5238 
2068 
2500 
17856 
2370 
7650 

1586 

9876 
726 


410392 


75 
17 
00 
50 
60 
39 

36 

25 
35 


20 


265123 

2507 

120 

23528 


00 
00 


57235 
6875 


410392 


74 
26 
56 
74 


95 
95 

20 


In  closing,  provide  for  the  following : 

Dividends  declared  at  the  rate  of  3|%  on  preferred  stock. 

Dividends  declared  at  the  rate  of  3%  on  common  stock. 

Depreciation  on  Machinery,  15%. 

Prepaid  Insurance  $48.25. 

Labor  accrued  but  not  paid        1850.00  (estimated). 

Taxes  accrued  but  not  due  250.00  (estimated). 

Inventory,  June  30, 1911  96385.50. 


REVENUE  ACCOUNTS 


185 


PROBLEM  42 
The  following  is  the  Trial  Balance  of  the  Arlington  Manufactur- 
ing Co.,  at  the  close  of  business  Dec.  31, 1904,  the  end  of  the  second 
fiscal  year  of  the  company's  operations : 

Trial  Balance 


'i 


Cash 

Land 

Buildings 

Machinery 

Tools  and  Implements 

Horses,  Wagons,  and  Harness 

Office  Furniture 

Notes  Receivable 

Accounts  Receivable 

Investments 

Salesmen's  Accounts  (Advances  in  Salaries) 

Organization  expense,  IJ15000.00  less  2  % 

Good  WiU 

Notes  Payable 

Accounts  Payable 

Special  Accounts  —  Officers  and  Clerks 

Reserve  for  Bad  Debts,  less  accounts  writ- 
ten off 

Reserve  for  Depreciation  on  Buildings  2^  % 

Reserve  for  Depreciation  on  Machinery  6  % 

Reserve  for  Depreciation  on  Horses,  Wag- 
ons, etc.,  10  % 

Capital  Stock,  10000  shares  at  $100.00 

Sales,  less  returns  and  allowances 

Rent  of  part  of  business  premises 

Inventory,  Dec.  31,  1903 

Purchases,  including  cartage 

Labor  —  factory  payrolls 

Salaries  of  officers,  clerical  force 

Salaries  of  salesmen 

Advertising 

Taxes 

Insurance 

Interest  and  Discount 

Expenses,  office  and  legal 

Maintenance,  Repairs,  Buildings,  and  Ma- 
chinery 

Profit  and  Loss  1903,  Surplus 


25324 
100000 
200000 
300000 

40430 

30000 
5201 

25812 
163374 

20000 
1960 

14700 
200000 


104621 

395662 

600400 

75120 

60440 

50300 

4020 

2600 

6500 

29750 

26942 


2483156 


00 
00 
00 
00 
00 
00 
00 
00 
00 
00 
00 
00 
00 


i 


00 
00 
00 
00 
00 
00 
00 
00 
00 
00 

00 


00 


42000 
98511 
15363 


112 

5000 

18000 

3000 

1000000 

1240600 

500 


60070 


2483156 


00 
00 
00 


00 
00 
00 

00 
00 
00 
00 


00 


00 


i 


m 


186     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Note.  —Inventory,  Dec.  31,  1004 

Factory  Payrolls  accrued,  but  not  paid 

Unexpired  Insurance 

Reserve  for  Bad  Debts,  S%  of  Accounts  Receivable. 


$270560.00 

6750.00 

912.00 


From  the  foregoing  Trial  Balance  and  notations  make  the  Jour- 
nal entries  necessary  to  close  the  books,  keeping  in  mind  that 
the  company  uses  Manufacturing,  Trading,  Administration,  and 
Profit  and  Loss  Accounts.  Write  off  2  %  of  original  organization 
expense.  In  arriving  at  the  net  proceeds  for  the  current  year,  make 
the  same  reserves  for  depreciation  as  were  made  at  the  end  of  the 
first  or  preceding  year.  Also  prepare  a  Balance  Sheet,  as  of  Dec.  31, 
1904.     Stable  equipment  is  employed  for  delivery  of  goods  sold. 


i 


r. 


I 


PRINCIPAL   PROBLEM   I 


187 


PRINCIPAL  PROBLEM   I 

General  Produce  Business  of  A.  J.  Dexter 

^^T^i^'^'''  r  '^^^  ^'***^^®"  '^'"  '"""^"^^  *^®  "'^"^^  principles  set  out  in  Chapters  IV  to 
XXIII,  inclusive.  It  is  independent  of  the  Supplementary  Exercises.  The  student  wiU 
use  the  Journal  and  the  Ledger  until  further  directed. 

Nov.    1,  1 9 1 3.  —  A.  J.  Dexter  this  day  commenced  the  General  Produce  Business, 

investing  cash,  $  20000.00. 
Rented  property  #  41  Exchange  Place  from  Albert  Jones,  pay- 
ing one  month's  rent  in  advance,  $  75.00.     (Rent  Account.) 
Engaged  a  bookkeeper  at  $15.00  a  week,  and  two  sales  clerks 

at  $  12.00  a  week,  respectively.     (No  entry.) 
Opened  an  account  in  the  Produce  National  Bank,  depositing 
the  balance  of  cash.     (No  entry.) 
Nov.    2,  1913.  —  Purchased  from  A.  C.  Drake,  on  account ; 

300  bu.  Potatoes  @  $  .45 

200  bu.  Onions  .52 

200  bskt.  Cabbage  .23 

Purchased  from  Hansell  &  Co.,  on  account : 
300  bx.  Oranges  (^  $  3. 10 

200  bx.  Lemons  2.05 

100  bbl.  Apples  3. 60 

Nov.    3,  1913.  —  Purchased  from  A.  W.  Martin,  for  caah : 

150  bbl  Apples  @  $3.55 

Sold  to  B.  S.  Perkins,  on  account : 
25  bbl.  Apples  @  $4.00 

30  bu.  Potatoes  .55 

10  bskt.  Cabbage  .30 

Sold  to  T.  N.  Merell,  for  cash  : 
25  bu.  Onions  @  $  .60 

Purchased  of  the  Star  Box  Co.,  for  cash : 
500  Baskets  @  $  .03 

NoTB.  —  Baskets  are  necessary  to  the  sale  of  goods ;  charge  Merchandise  Account 
for  same. 


i 


U 


Nov.    4,  1913.— 


Purchased  from  the  Phoenix  Sack  Co.,  for  cash : 
300  Potato  Sacks  @$  .04 

(Charge  similar  to  above.) 

Sold  T.  N.  Hawkins,  on  account : 
40  bx.  Lemons  @  $2.50 

60  bx.  Oranges  3.50 


/ 


I> 


Nov.    5,  1913.  — 


Nov.    6,  1913. 


Nov.    8,  1913.— 


i 


188     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Sold  L.  Adler,  on  account : 

10  bx.  Lemons  @  $2.55 

15  bx.  Oranges  3.60 

Paid  $  18.00  for  sign  in  front  of  store.     (Expense  Account.) 
Paid  bill  of  Novelty  Stationery  Co.,  just  received,  for  Office 

Books,  860.00.     (Expense  Account.) 
Received  cheek  for  $100.00  from  B.  S.  Perkins,  on  account. 
Sent  A.  C.  Drake  check  for  $150.00  to  apply  on  account. 
Sent  Hansell  &  Co.  check  for  $500.00  to  apply  on  account. 
Paid  salaries  of  bookkeeper  and  clerks  for  the  week,  $  39.00. 
A.   J.    Dexter   drew  his  weekly   salary  of  $20.00.     (Salary 

Account.) 
Purchased  from  A.  C.  Drake,  on  account : 

200  bu.  Potatoes  @  $   .48 

150  bu.  Onions  .55 

Purchased  from  Hansell  &  Co.,  on  account : 

100  bx.  Oranges  (^$3.00 

150  bx.  Lemons  2.20 

Received  bill  of  $  40.00  from  Produce  Cartage  Co.,  for  hauling 

merchandise.     Enter  the  bill  but,  do  not  pay  it. 
Sold  to  B.  S.  Perkins,  on  account : 

50  bbl.  Apples  @  $3.90 

30  bu.  Potatoes  .60 

Sold  to  L.  Adler,  on  account : 

20  bx.  Oranges  @  $3.75 

Sold  to  P.  H.  Brooks,  for  cash  : 

190  bskt.  Cabbage  @  $  .28 

Sold  Joseph  Denny,  on  account : 

125  bu.  Onions  @  $  .65 

200  bu.  Potatoes  .55 

Paid  salaries  of  bookkeeper  and  clerks,  $  39.00.     A.  J.  Dexter 

drew  his  salary  of  $  20.00. 
Purchased  of  D.  Howard,  on  account : 

100  Baskets  Cabbage  @  $  .25 

Purchased  of  the  Ajax  Coal  Co.,  for  cash : 

10  tons  Coal  @  $6.00 

(Expense  Account.) 
Sold  to  T.  P.  Hunter,  on  account : 

150  bx.  Oranges  @  $4.00 

Sold  to  A.  S.  Jackson,  on  account : 

100  bx.  Lemons  @  $2.50 

Received  drayage  bill  from  Produce  Cartage  Co.,  for  $25.00, 
for  hauling  merchandise  from  9th  to  18th  lost. 


PRINCIPAL  PROBLEM  I 


189 


Nov.  9,  1913. 
Nov.  10,  1913. 

Nov.  11,  1913. 
Nov.  12,  1913. 
Nov.  13,  1913." 


Nov.  15,  1913. 
Nov.  16,  1913. 

Nov.  17,  1913. 
Nov.  18,  1913.- 


Nov.  19,  1913.— 

Nov.  20,  1913.— 

Nov.  22,  1913.— 
Nov.  23,  1913.— 
Nov.  24,  1913.— 


Nov.  25,  1913. 
Nov.  26,  1913. 
Nov.  27,  1913. 


Nov.  29,  1913. 
Nov.  30,  1913. 


Received  from  Joseph  Denny,  check  for  $100.00,  to  apply  on 

account. 
Settled  account  with  D.  Howard  by  mailing  check  for  $  25.00. 
Settled  account  with  the  Produce  Cartage  Co.  by  mailing  check 

for  $65.00. 
Paid  weekly  salaries. 
Sold  to  Dawson  &  Maxwell,  on  account : 

150  bu.  Onions  @  $   .65 

Sold  to  J.  H.  Hammond,  on  account : 

125  bbl.  Apples  (g  $4.20 

Sold  to  S.  Beitler,  on  account : 

100  bx.  Lemons  @  $2.50 

Paid  for  bill  heads  and  sundry  office  supplies,  $  15.00,  from  Cash 

Drawer.     (Expense  Account.) 
Received  from  L.  Adler,  check  for  $79.50,  on  account. 
Sent  check  to  Hansell  &  Co.  for  $300.00,  on  account. 
Paid  salaries  of  bookkeeper,  clerks,  and  proprietor.     Mailed 

A.  C.  Drake  check  for  $135.00,  in  settlement  of  bill  of  the 

2d  instant. 
T.  N.  Hawkins  sent  check  for  $310.00,  settling  his  account. 
Paid  the  following  bills : 

Telephone  $4.00 

Gas  3.00 

Electric  Light  2.50 

1.  Post  the  above  transactions  to  the  Ledger,  placing  the  ac- 
counts on  the  pages  designated  in  the  index,  to  be  found  at  the  end 
of  the  problem,  on  page  210.  The  student  will  index,  on  the  first 
two  pages  of  the  Ledger,  each  new  account  as  it  is  opened. 

2.  Present  a  Trial  Balance  of  the  Ledger,  as  of  Nov.  30,  1913. 

Dec.    1,1913. — A.    J.    Dexter    purchased    store    building   and    ground    for 

$10000.00.     The   building  is   valued  at  $6500.00;   the 
ground  at  $3500.00.     Dexter   paid  cash  for  the  above. 
(Open  separate  accounts  for  *'  Building  "  and  "  Land.") 
Received  from  T.  P.  Hunter,  his  30-day  note  dated  to-day,  for 

$600.00,  in  ftiU  settlement  of  his  account. 
Purchased  for  cash  from  the  Excelsior  Wagon  Co.,  a  horse  and 
wagon,  $400.00.     (Horses  and  Wagons  Account.)     Paid 
one  month's  rent  in  advance  from  Dec.  1,  for  stable,  $25.00. 
(Stable  Expense  Account.) 

Dec.    4,  1913. — Purchased  for  cash  from  the  Horse  Bazaar,  another  horse  and 

wagon,  $400.00. 


Dec.    2,  1913. 
Dec.    3,  1913. 


II 


I 


I 


II 
II 


'It' 


190    A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Purchased  from  the  A.  Cassel  Feed  Co.,  on  account,  feed,  hay, 
etc.,  for  the  stable,  $25.00.     (Stable  Expense  Account.) 
Paid  weekly  salaries  as  follows : 
Bookkeeper  $15.00 

Two  clerks,  each  12.00 

A.  J.  Dexter  20.00 

Two  drivers,*  each  10.00 

Dec.    5,  1913.  —  Paid  bill  of  $  100.00,  received  from  the  A.  H.  Lewis  Paint  Co., 

for  painting  building.     (Repjurs  Account.) 
Purchased  from  A.  C.  Drake,  on  account : 
400  bu.  Potatoes  @  $  .50 

200  bu.  Onions  .66 

Dec.    7,  1913.  —  Purchased  from  Hansell  &  Co.,  on  account : 

50  bx.  Lemons  @  $  2.50 

Sold  to  B.  S.  Perkins,  on  account : 

75  bx.  Oranges  @  $4.60 

Sold  to  T.  P.  Hunter,  on  account  : 
100  bx.  Oranges  @  $4.55 

Dec.    8,  1913.  —  Received  from  B.  S.  Perkins,  $19.50  in  cash,  to  apply  on 

account : 
Gave  Hansell  &  Co.  30-day  note,  dated  6th,  for  $900.00,  to 
apply  on  account. 
Dec.    9,  1913.  — Received  from  L.  Alder,  30-day  note  dated  Dec.  6,  for  $75.00, 

with  interest  at  6  %. 
Received  30-day  note  from  B.  S.  Perkins,  dated  Dec.   8,  for 
$213.00. 
Dec.  10,  1913.  —  Purchased  from  D.  Howard,  on  account : 

200  bekt.  Cabbage  @  $  .25 

Sold  L.  Alder,  on  account : 

100  bskt.  Cabbage  %  f  .30 

Purchased  from  L.  Simpson  &  Co.,  on  account : 
100  bbl.  Apples  @$3.80 

Dec.  11,  1913.  —  Sold  to  Joseph  Denny,  on  account : 

200  bu.  Potatoes  @  $  .65 

Purchased  from  New  York  Produce  Co.,  on  account: 

100  bu.  Onions  (o)  $  .52 

Paid  weekly  salaries,  as  on  the  4th  instant. 
Received  from  Joseph  Denny,  check  for  $91.25,  on  account. 
Received  from  A.  S.  Jackson  his  30-day  note,  dated  Dec.  13, 
for  $250.00,  with  interest  at  6  %,  in  full  settlement  of  his 
account. 

*  (Charge  to  Stable  expense.) 


Dec.  13,  1913. 
Dec.  14,  1914. 


PRINCIPAL  PROBLEM  I 


191 


Dec.  15,  1913.  — I 


Dec.  16,  1913.— 


Dec.  17,  1913.— 


Dec.  18,  1913.— 


Sent  blacksmith  check  for  $  15.00,  for  shoeing  horses. 
Discounted  30-day  note  received  from  T.  P.  Hunter  on  Dec.  2, 

at  the  Produce  National  Bank. 
Gave  A.  C.  Drake  60-day  note,  dated  to-day,  with  interest  at 

6  %,  for  $178.50,  to  apply  on  account. 
Sold  to  P.  Woodruflf,  on  account : 
200  bu.  Potatoes  @  $  .65 

75  bu.  Onions  .70 

(This  bill  is  subject  to  2  %  discount  if  paid  within  5  days.) 
Received  from  Dawson  &  Maxwell,  check  for  $97.50,  in  settle- 
ment of  their  account. 
Sold  to  Dawson  &  Maxwell,  subject  to  2  %  discount  within  5 
days: 
100  bx.  Lemons  @  $  3.00 

Mailed    check   for  $52.00   to   New   York   Produce   Co.,   in 

settlement  of  account. 
Paid  weekly  salaries,  as  on  11th  inst. 
Dec.  20,  1913.  — Received  from  P.  Woodruff,  check  in  payment  of  bill  of  16th 

instant,  less  2  %  discount.     (Charge  the  discount  to  Mer- 
chandise Discount  Account.) 
Purchased  from  New  York  Produce  Co.,  on  account : 
150  bskt.  Cabbage  @$   .30 

Dec.  21,  1913.  —  Received  from  Dawson  &  Maxwell,  check  in  payment  of  their 

purchase  of  17th  instant,  less  2  %  discount. 
Paid  the  carpenter  for  sundry  repairs  in  building,  $  25.00. 
Dec.  22,  1913. —  Received  from  J.  H.  Hammond,  his  30-day  note,  dated  Dec. 

21,  with  interest  at  6  %,  for  $525.00,  in  settlement  of 
his  account. 
Sold  to  S.  Beitler,  on  account : 
175  bskt.  Cabbage  @$   .30 

Dec.  23,  1913.  —  Discounted  B.  S.   Perkins'    note,  received  on  Dec.  9,  at  the 

Produce  National  Bank. 
Gave  L.  Simpson  &  Co.  30-day  note  dated  to-day  for  $  380.00, 
in  settlement  of  account. 
Dec.  24,  1913.  —  Sold  to  T.  N.  Hawkins,  on  account : 

100  bbl.  Apples  @  $  4.60 

75  bx.  Oranges  4.50 

Purchased  from  A.  C.  Drake  the  following  items,  subject  to 

5  %  discount  if  paid  within  5  days : 

300  bx.  Oranges  (g$3.90 

200  bx.  Lemons  2.25 

100  bbl.  Apples  3.80 

Paid  weekly  salaries  as  per  pay  roll  of  Dec.  18 


«' 


t 


i 


II 


Hi 


t! 


192     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Dec.  27,  1913. 
Dec.  28,  1913. 

Dec.  29,  1913. 

Dee.  30,  1913. 


-  Receive<l  check  for  $  70.00  from  S.  Beitler,  on  account. 
Sold  to  Andrews  &  Hemphill,  on  account : 
100  bx.  Oranges  @  $  4.50 

Paid   A.  C.  Drake   for  purchase  of  Dec.  24,  thereby  taking 

advantage  of  discount. 
Received  from  Andrews  &  Hemphill  their  check  for  $  200.00 
and  their  30-day  note,  date<l  to-day,  for  $  250.00,  in  pay- 
ment of  their  bill  of  Dec.  28. 
Discountetl  Andrews  &  Hemphill's  note  at  the  bank.     Rate  of 
discount,  6  %. 
Dec.  31,  1913.  —Paid  in  cash,  the  following  bills  : 

Telephone  $  4.50 

Gas  2.75 

Electricity  3.75 

Paid  weekly  salaries,  as  per  pay  roll  of  Dec.  24. 

Post  the  above  transactions  to  the  Ledger,  opening  any  new 
accounts  that  may  be  necessary  on  the  pages  designated  in  the  index 
on  page  210. 

Present  a  Trial  Balance  of  the  Ledger  as  of  Dec.  31,  1913.     This 
Trial  Balance  includes  the  two  months'  work. 

The  following  is  the  inventory  of  Merchandise,  taken  at  the  last 
cost  price  : 

240  bu.  Potatoes  @$   .50 

275  bu.  Onions  .52 

150  bbl.  Apples  3.80 

105  bx.  Oranges  3.90 

250  bx.  Lemons  2.25 

175  bskt.  Cabbage  .30 

There  is  also  on  hand,  and  to  be  included  as  part  of  the 
inventory  : 

@$.03 


250  Bushel  Baskets 
200  Potato  Sacks 


.04 


Present  a  Six-Column  Statement  as  of  Dec.  31,  1913,  grouping 
the  personal  accounts  under  the  captions  "Accounts  Receivable*' 
and  "Accounts  Payable."  Make  the  Journal  entries  necessary  to 
close  the  nominal  accounts  into  the  Profit  and  Loss  Account,  and 
transfer  the  balance  of  this  account  in  turn  to  the  Proprietor's 
Account. 

Balance  and  rule  all  Financial  Accounts. 

Present  a  final,  or  Proof  Trial  Balance. 


PRINCIPAL  PROBLEM  I 


193 


These  Statements  should  be  made  on  the  Statement  sheets  to  be 
found  in  the  back  of  Blank  Book  #  1,  and  the  Journal  entries  in  the 
Journal  directly  following  the  last  entry  of  December. 

Note. — The  student  will  use  the  Journal,  Cash  Book,  Sales  Book,  Purchase  Book, 
and  Bill  Book.  Copy  the  balance  of  cash  as  shown  in  the  Ledger  into  the  Cash  Book. 
Use  the  Bill  Book  as  an  auxiliary  book,  making  entries  for  notes  receivable  and  notes 
payable  in  the  Journal.  Before  commencing  the  month,  copy  into  the  Bill  Book  all 
notes  handled  previously  by  the  business,  entering  all  information  at  hand.  All  notes 
payable  are  made  payable  at  the  Produce  National  Bank,  and  the  notes  receivable  are 
made  payable  at  A.  J.  Dexter's  office. 

Jan.    2,  1914.  —  A.  J.  Dexter  purchased  the  stable,  paying  $  1500.00  for  the 

land  and  $  2000.00  for  the  building,  for  which  he  imme- 
diately made  payment  by  check  to  the  City  Realty  Co. 
Gave  check  for  $  630.00  to  Hansell  &  Co.,  to  apply  on  account. 
Sent  check  for  $  50.00  to  D.  Howard,  in  settlement  of  account. 
Jan.    3,  1914.  —  Sent  check  to  the  New  York  Produce  Co.,  for  $  45.00,  in  settle- 
ment of  account. 
Sent  check  to  A.  S.  Cassel  Feed  Co.,  for  $  25.00,  in  settlement 

of  account. 
Sent  check  for  $  100.00  to  A.  C.  Drake,  to  apply  on  account. 
Jan.    4,  1914.  — Received  check  for  $  145.00  from  B.  S.  Perkins,  on  account. 

Received  check  for  $  197.50  from  T.  N.  Hawkins,  on  account. 
Paid  $25.00  to  wheelwright,  for  repairing  broken  wheel  and 
axle.     (Stable  expense.) 
Jan.    5,  1914.  —  Sold  T.  N.  Hawkins,  on  account: 

75  bbl.  Apples  @$4.90 

50  bx.  Oranges  4.50 

20  bx.  Lemons  2.50 

Sold  L.  Adler,  on  account : 

100  bskt.  Cabbage  @  $    .32 

The  Produce  National  Bank  advised  A.  J.  Dexter  that  they 
have  paid  his  30-day  note,  dated  Dec.  6,  in  favor  of  Han- 
sell &  Co.     (Given  them  Dec.  8,  1913.) 
Received  check  for  the  principal  and  interest  on  the  note  of 
L.  Alder,  received  Dec.  9,  1913. 
Jan.  6,  1914.  —  Sold  to  B.  S.  Perkins,  terms  5/10/30 : 

50  bbl.  Apples  @$4.25 

50  bx.  Lemons  2.25 

5  bx.  Oranges  4.00 

Sold  to  L.  Harrison,  for  cash  : 
5  bx.  Oranges  @  $4.10 

10  bx.  Lemons  2.35 

2  bbl.  Apples  4.50 


194    A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


!  .30 
.65 
.60 

.58 

.65 

.30 

4.50 


$12.00 
20.00 
15.00 
10.00 


Jan.    8,  1914. 


"n 


Sold  to  Brown  Grocery  Co.,  for  cash : 
25  bskt.  Cabbage  @  i 

40  bu.  Potatoes 
15  bu.  Onions 
Sold  to  J.  Denny,  on  account : 
60  bu.  Onions  @  | 

50  bu.  Potatoes 
10  bskt.  Cabbage 
3  bbl.  Apples 
Paid  weekly  salaries,  as  follows : 
Clerks,  two,  each  at 
A.  J.  Dexter 
Bookkeeper 
Drivers,  two,  each  at 
-  Received  check  from  L.  Adler,  for  $  30.00,  to  apply  on  account. 
Received  check  from  Joseph  Denny,  for  $  130.00,  to  apply  on 
account. 
Jan.    9,  1914.  —  Sold  to  T.  P.  Hunter,  on  account : 

50  bu.  Potatoes  @  $   .68 

10  bu.  Onions  .60 

15  bskt.  Cabbage  .28 

10  bx.  Oranges  4.00 

Received  from  Joseph  Denny  his  30-day  note,  dated  the  8th, 

bearing  interest  at  6  %,  for  $83.80. 
Received  from  T.  P.  Hunter  his  check  for  $  55.00  to  apply  on 
account,  and  his  6  %-30-day  note,   dated  the  8th  inst., 
for  $400.00. 
Jan.  10,  1914.  —  Sold  to  L.  Harrison,  for  cash : 

3  bx.  Oranges  @  $  4.15 

15  bx.  Lemons  2.40 

1  bbl.  Apples  4.25 

Sold  to  J.  Carroll,  for  cash: 
20  bu.  Onions  @  $  .60 

Jan.  11,  1914. — Purchased  from  the  A.  S.  Cassel  Feed  Co.,  on  account,  Feed, 

Hay,  etc.,  for  stable,  $35.00. 
Paid  the  blacksmith  for  shoeing  horse,  $8.00. 
Jan.  12,  1914. — By  arrangement  with  A.  J.  Dexter,  T.  P.  Hunter  returned  the 

10  boxes  of  Oranges  purchased  on  Jan.  9. 
Received  from  A.  S.  Jackson,  check  for  principal  and  interest  of 
his  note,  received  on  the  14th  ult. 
Jan.  13,  1914. — Received  from  S.  Beitler  his  check  for  $32.50  and  his  30-day 

note  bearing  interest  at  6  %  and  dated  to^iay,  for  $200.00, 
in  settlement  of  his  account. 


Jan.  15,  1914. 


PRINCIPAL  PROBLEM  I  195 

Paid  weekly  salaries,  as  on  the  6th  inst. 
•Sold  to  Dawson  &  Maxwell,  on  account : 
10  bskt.  Cabbage  @  $  .22 

40  bu.  Potatoes  .65 

15  bx.  Lemons  2.25 

30  bu.  Onions  .60 

Sold  to  J.  H.  Hammond,  on  account : 
40  bu.  Onions  @  $  .62 

20  bx.  Lemons  2.20 

4  bbl.  Apples  4.20 

5  bskt.  Cabbage  .20 

Note.  — Before  continuing,  student  will  rule  up  Cash  Book  and  Sales  Book,  and 
after  posting  the  several  books,  will  prepare  a  Trial  Balance. 

Jan.  16, 1914. — B.  S.  Perkins  paid  his  bill  of  the  6th  inst.,  less  discount. 

Purchased  from  the  New  York  Produce  Co.,  on  account : 
50  bu.  Potatoes  @  |  .52 

40  bu.  Onions  .55 

Purchased  from  L.  Simpson  &  Co.,  on  account : 
50  bbl.  Apples  @  $3.80 

40  bx.  Oranges  3.75 

Jan.  17,  1914. — Purchased  at  auction,  for  cash  : 

25  bx.  Lemons  @  $2.00 

50  bbl.  Apples  3.70 

10  bx.  Oranges  3.70 

Purchased  from  B.  D.  Walker  for  cash  : 
75  bskt.  Cabbage  @  $  .20 

40  bu.  Potatoes  .50 

Jan.  18,  1914.— Sent  check  for  $210.00  to  A.  C.  Drake  to  settle  account. 

Purchased  from  A.  C.  Drake,  terms  5/10/60: 
300  bu.  Potatoes  @  $  .48 

220  bu.  Onions  .52 

100  bskt.  Cabbage  .18 

Purchased  from  Hansell  &  Co.,  terms  5/10/60 : 
200  bx.  Oranges  @  $3.00 

150  bx.  Lemons  2.00 

100  bbl.  Apples  3.50 

Jan.    19,  1914.— Sold  to  Joseph  Denny,  terms  2/5/30 : 

120  bu.  Onions  @  $  .60 

250  bu.  Potatoes  .58 

Sold  to  Dawson  &  Maxwell,  on  account : 
100  bu.  Onions  @  $  .62 

50  bbL  Apples  4.25 


ill 


ri 


I 


I 


Jan.  22,1914.—' 


I 


Jan.  23,  1914.— 


•J*t 


I 


196     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Jan.  20,  1 9  U.  — Purchased  from  the  New  York  Produce  Co.,  on  account : 

50  bskt.  Cabbage  @  ^  .20 

75  bbl.  Apples  3.75 

100  bu.  Potatoes  .55 

Purchased  of  L.  Simpson  &  Co.,  on  account : 
80  bbl.  Apples  @  $3.50 

40  bx.  Oranges  3.  go 

Purchased  of  B.  D.  Walker,  for  cash : 

50  bskt.  Cabbage  @  $  .20 

Received  from  J.  H.  Hammond,  his  check  for  the  principal  and 
interest  of  his  note,  received  on  Dec.  22.     Paid  salaries  as 
per  the  13th  inst. 
-The  Produce  National  Bank  a^lvised  A.  J.  Dexter  of  having  paid 
his  30-day  note,  given  to  L.  Simpson  &  Co.,  on  the  23d  ult. 
Sold  B.  S.  Perkins,  on  account : 
75  bbl.  Apples  @  $4.20 

60  bx.  Lemons  2.30 

80  bskt.  Cabbage  .30 

Drew  on   B.   S.   Perkins   at   sight    for  $200.00.      Perkins 
accepted. 

Accepted  to-day  a  30-day  draft  for  $340.00,  drawn  by  L.  Simp- 
son &  Co.,  payable  to  A.  P.  Roberts. 
Drew  a  30-day  draft  for  $300.00  on  Dawson  &  Maxwell,  in 
favor  of  the   New   York   Produce  Co.      The  draft   was 
accepted. 
Jan.  24,  1914.  —  Sold  to  Andrews  &  Hemphill,  on  account: 

100  bbl.  Apples  @$4.10 

80  bx.  Oranges  4. 20 

(Charge  to  Andrews  &  Hemphill.) 

Received  in  payment  for  this  bill  a  Bank  Draft  drawn  in  favor 
of  Andrews  &  Hemphill,  and  indorsed  by  them  to  A.  J. 
Dexter.     (Credit  to  Andrews  &  Hemphill.) 
Purchased  from  the  New  York  Produce  Co.,  on  account : 
100  bu.  Potatoes  @  $  .50 

80  bu.  Onions  .53 

100  bbl.  Apples  4.00 

Accepted  10-day  sight  draft  drawn  by  the  New  York  Produce 

Co.,  payable  to  their  order,  $94.25. 
Received  from  Joseph  Denny,  his  check  in  settlement  of  his 

purchase  of  Jan.  19,  less  the  discount. 
Received  telegram  from  J.  W.  Boyce,  of  Allentown,  Pa.,  order- 
ing 400  bu.  potatoes,  (g  $.60. 
Shipped  same  on  order  bill  of  lading  with  sight  draft  attached, 


Jan.  25,  1914.— 


PRINCIPAL  PROBLEM  I 


197 


which  was  deposited  at  the  Produce  National  Bank  for 
collection.     (Bank  will  credit  A.  J.  Dexter  on  collection.) 
Sold  to  Harrisburg  Produce  Co.,  of  Harrisburg,  on  account : 

150  bbl.  Apples  (^  $4.20 

Shipped  above  on  straight  bill  of  lading. 

Drew  at  30  days  sight  on  the  Harrisburg  Produce  Co.,  for 
$  200.00,  payable  to  A.  J.  Dexter.     (No  entry.) 
Jan.  26,  1914.  —  Received  the  above  acceptance,  dated  to-day,  from  the  Harris- 
burg Produce  Co. 
Shipped  to  J.  W.  Boyce  on  order  bill  of  lading  with  sight  draft 
attached : 
75  bbl.  Apples  (^$4.20 

80  bu.  Onions  .62 

(Charge  to  J  W.  Boyce.) 

Deposited  bill  of  lading  and  received  credit  immediately  for  the 
amount  of  the  draft  less  45^  (collection  fee).     (Collection 
and  Exchange  Account.) 
Sold  to  T.  P.  Hunter,  on  account : 
60  bu.  Onions  @  $  .63 

70  bx.  Oranges  4.10 

Jan.  27,  1914.  —  Received  notification  from  the  bank  of  the  collection  of  the 

sight  draft  drawn  on  J.  W.  Boyce,  of  Allentown,  Pa.,  on 
the  25th  inst.     Collection  fee,  30  ^. 
Sent  check  to  A.  C.  Drake  in  settlement  of  bill  of  Jan.  18, 

less  the  discount. 
Sent  check  to  Hansell  &  Co.,  in  settlement  of  bill  of  Jan.  18, 

less  discount. 
Paid  salaries  as  per  pay  roll  of  Jan.  20. 
Jan.  29,  1914. — Sold  to  A.  S.  Jackson,  on  account: 

105  bskt.  Cabbage  @  $  .30 

72  bx.  Oranges  4.25 

35  bx.  Lemons  2.10 

A.  S.  Jackson  accepted  a  30-day  draft  drawn  on  him  to  order 

of  A.  J.  Dexter,  for  $300.00. 
Received  check  from  Dawson  &  Maxwell  for  $24.45  to  apply 
on  account. 
Jan.  30,  1914.  —  Discounted   A.   S.  Jackson's   acceptance   of  Jan.  29   at   the 

Produce  National  Bank. 
Purchased  from  A.  C.  Drake,  on  account : 
200  bu.  Potatoes  @  $  .50 

200  bu.  Onions  .54 

Jan.  31,  1914.— Accepted  a  30-day  draft  for  $310.00  dated  to-day  and  drawn  by 

L.  Simpson  &  Co. 


1 


I 


198     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Drew  30-day  draft  for  $200.00  on  T.  N.  Hawkins,  payable  to 

A.  C.  Drake.     Hawkins  accepted  the  draft. 
Purchased  from  the  A.  S.  Cassel  Feed  Co.,  on  account :    Hay 

Straw,  Feed,  etc.,  $30.00. 
Paid  the  following  bills  by  checks : 
Telephone  $5.00 

Gas  3.00 

Electricity  4.00 

1.  Total  and  rule  up  the  Cash  Book,  Sales  Book,  and  Purchase 
Book. 

2.  Post  and  take  a  Trial  Balance  as  of  Jan.  31,  1914. 

3.  Prepare  a  Six-Column  Statement.  (Supplementary  data 
given  below.) 

4.  Make  the  necessary  entries  to  close  the  Nominal  Accounts 
into  Profit  and  Loss,  and  this  account  in  turn  into  the  Proprietor's 
Account. 

6.   Balance  and  rule  all  Financial  Accounts. 
6.    Take  off  a  Proof  Trial  Balance. 

The  following  is  the  inventory  of  merchandise  on  hand,  on  Jan. 
31,  1914. 

200  bu.  Potatoes  @  $  .50 

240  bu.  Onions  .54 

20  bbl.  Apples  4.00 

105  bx.  Oranges  3.00 

240  bx.  Lemons  2.00 

100  bekt.  Cabbage  .20 

There  remain  in  the  stable  hay,  straw,  feed,  etc.,  to  the  value  of 
$30.00. 

Note. — The  student  will  continue  to  use  the  Journal,  Cash  Book,  Sales  Book, 
Purchase  Book,  and  the  Bill  Book.  The  Bill  Book,  however,  is  to  be  used  only  as  an 
auxiliary  book. 

Feb.     1,  1914. — A.  J.  Dexter  to-day  admitted  W.  H.  Warner  as  an  equal  partner 

in  the  business.  Warner  invested  an  amount  equal  to  the 
present  worth  of  A.  J.  Dexter  on  Jan.  31,  1914. 
Profits  and  losses  are  to  be  shared  equally,  and  each  partner  is 
allowed  a  salary  of  $25.00  a  week.  The  partnership  is  to 
be  known  as  A.  J.  Dexter  &  Co.  Dexter  agreed  to  accept 
the  following  items  as  part  of  the  investment  of  W.  H. 
Warner: 
2  cars  of  Potatoes,  900  bu  @$  .50 

1  car  of  Onions,  480  bu.  .54 


PRINCIPAL  PROBLEM  I 


199 


200  bbl.  Apples 
150  bx.  Oranges 
350  bx.  Lemons 
100  or.  Celery 
4  Horses  and  1 
2  Wagons       / 
Claims  against 
R.  H.  Fow  &  Co. 
Davis  &  Brown 
A.  P.  HiU 
J.  W.  Henry 


valued  at 


4.00 
3.00 
2.00 
2.50 

1000.00 


2500.00 
2000.00 
1200.00 
1150.00 


Feb.    2,  1914. 


Feb.  3,  1914. 


Warner  gave  his  check  for  the  balance  of  the  investment. 
Received  check  from  B.  S.  Perkins,  for  $177.00,  to  apply  on 

account. 
Received  check  for  $242.50  from  T.  N.  Hawkins  to  apply  on 

account. 
Received  check  from  L.  Adler,  in  full  of  account. 
Mailed  check  to  A.  C.  Drake  for  balance  due  him. 
-Drew  a  30-day  draft  for  $400.00  on  T.  N.  Hawkins  in  favor  of 
the  New  York  Produce  Co.     T.  N.  Hawkins  accepted  the 
draft. 
Drew  a  30-day  draft  for  $300.00  on  B.  S.  Perkins  in  favor  of 

firm.     B.  S.  Perkins  accepted  the  draft. 
Purchased  from  the  New  York  Produce  Co.,  terms  2/5/30. 
100  bbl.  Apples  @  $3.95 

200  bu.  Potatoes  .50 

Purchased  from  B.  D.  Walker,  for  cash : 

100  bskt.  Cabbage  @  $  .22 

Purchased  at  auction,  for  cash : 
50  bx.  Lemons  @$2.10 

30  bx.  Oranges  3.50 

50  cr.  Celery  2.50 

Paid  premium  for  one  year  on  fire  insurance  policies  ($8500.00, 

dated  Feb.  1,  1914),  $48.00.     (Insurance.) 
Paid  $600.00  cash  to  cover  cost  of  advertising  for  one  year  in 
the  Produce  Trade  Journal,  the  contract  having  been  made 
of  the  1st  instant.     (Advertising  Account.) 
Paid  weekly  salaries  as  follows : 
4  clerks,  each  at  $12.00 

1  bookkeeper  15.00 

4  drivers,  each  at  10.00 

A.  J.  Dexter  25.00 

W.  H.  Warner  25,00 


!| 


11 


200      A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Advice  was   received   from  the   Produce  National  Bank   that 
they  have  paid  the  10-day  sight  draft  for  $94.25  drawn 
by  the   New  York  Produce  Co.,  and  accepted   by  A.  J. 
Dexter  on  Jan.  24. 
Purchased  for  cash :   new  safe,  typewriter,  office  desks,  filing 
cabinets,   etc.,  at  a  cost  of  $1000.00.     (Furniture  and 
Fixtures  Account.) 
Sold  to  L.  Haines,  for  cash : 
10  bx.  Oranges  @  $4.25 

8  bx.  Lemons  2.40 

3  bbl.  Apples  4.50 

Sold  to  the  Brown  Grocery  Co.,  for  cash : 
25  bskt.  Cabbage  @  $.  30 

40  bu.  Potatoes  .62 

10  cr.  Celery  3.00 

Feb.  5,  1914.  —  Sold  to  B.  S.  Perkins,  on  account : 

40  cr.  Celery  @  $2.80 

25  bbl.  Apples  4.30 

Purchased  at  auction,  for  cash : 
50  cr.  Celery  @$2.20 

50  bx.  Oranges  3.80 

Purchased  from  L.  Simpson  &  Co.,  on  account : 
50  bx.  Lemons  @  $2.00 

40  bx.  Oranges  3.80 

A.  J.  Dexter  sent  a  check  for  $400.00  to  the  Life  Insurance 
Co.,  to  cover  the  yearly  premium  on  his  personal  policy. 
(Open  Personal  Account.) 
A.  J.  Dexter  sent  5  boxes  of  oranges  to  a  church  festival,  order- 
ing them  charged  to  his  account  at  cost,  $3.80  per  box. 
(Enter  in  Sales  Book  and  charge  to  his  Personal  Account.) 
Feb.  6,  1914.  —  Received  from  T.  N.  Hawkins,  check  for  $200.00,  to  apply  on 

account. 
Drew  a   10-day  sight   draft   for  $430.00   on  the  Harrisburg 

Produce  Co.,  which  they  accepted. 
Mailed  check  to  the  A.  S.  Cassel  Feed  Co..  in  settlement  of 

account. 
Sold  to  Joseph  Denny,  terms  2/10/30 : 
70  bu.  Onions  @  $.58 

80  bu.  Potatoes  .60 

80  bskt.  Cabbage  .30 

Sold  to  T.  P.  Hunter,  terms  2/10/30 : 
100  cr.  Celery  @$2.60 

100  bx.  Oranges  4.20 


PRINCIPAL  PROBLEM   I 


201 


Shipped  to  J.  W.  Boyce,  at  Allentown,  Pa.,  one  carload  of 
potatoes  (450  bu.),  to  be  sold  on  account.     (Make  only 
memorandum  record.) 
Shipped  to  the  Harrisburg  Produce  Co.,  at  Harrisburg,  Pa^ 
to  be  sold  on  account: 
30  cr.  Celery 
100  bx.  Oranges 
100  bx.  Lemons 
Feb.  7,  1914.  —  W.  H.  Warner  purchased  for  his  private  use  at  cost  price : 

5  bu.  Potatoes  @$  .50 

1  bu.  Onions  .54 

1  bbl.  Apples  4.00 

(Charge  to  his  Personal  Account.) 
Sold  to  A.  S.  Jackson,  on  account : 
40  bx.  Oranges  @  $  4.25 

20  bx.  Lemons  2.20 

40  bskt.  Cabbage  .30 

Mailed  check  to  New  York  Produce  Co.,  for  bill  of  Feb.  2,  less 

the  discount. 
Received  check  from  Joseph  Denny  for  principal  and  interest 

of  his  note,  received  Jan.  9. 
Paid  the  blacksmith  for  shoeing  horses,  $  12.00. 
Purchased  from  B.  D.  Walker,  for  cash : 
100  bskt.  Cabbage .  @  $  .22 

100  bu.  Potatoes  .50 

Received  check  from  T.  P.  Hunter  for  the  principal  and  in- 
terest of  his  note,  received  Jan.  9. 
■  Received  an  account  sales  from  J.  W.  Boyce  of  Allentown,  Pa., 
showing  net  proceeds  of  $  270.00,  which  amount  Boyce  is  to 
remit  within  a  few  days.     (Enter  in  the  Sales  Book  as  a 
charge  to  J.  W.  Boyce,  and  in  explanation,  "  net  proceeds  as 
per  account  sales  of  450  bu.  Potatoes  shipped  on  Feb.  6.") 
Sold  to  L.  Haines,  on  account : 
20  bx.  Oranges  @$4.30 

10  bx.  Lemons  2.45 

10  cr.  Celery  2.90 

Sold  to  B.  D.  Harvey,  on  account : 
20  bx.  Lemons  @  $  2.45 

10  cr.  Celery  2.90 

Sold  to  B.  S.  Perkins,  on  account : 
100  bu.  Potatoes  (^  $   .58 

100  bbl.  Apples  4.30 

10  cr.  Celery  2.85 


Feb.  8,  1914. 


lit 


IMl 


202     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Feb.    9,  1914.  —  Sold  to  J.  Denny,  terms  2/10/30 : 

120  bu.  Onions  @  $   .57 

100  bu.  Potatoes  .58 

Sold  to  A.  S.  Jackson,  tenns  2/5/30 : 
50  bu.  Potatoes  @  $   .60 

25  bbl.  Apples  4.35 

100  bx.   Lemons  2.25 

10  bx.    Oranges  4.25 

Received  check  for  $  500.00  from  R.  H.  Fow  &  Co.,  to  apply 

on  account. 
Drew  a  1  Onlay  sight  draft  on  Davis  <fe  Brown  in  favor  of  the 
firm  for  $  1000.00.     The  draft  was  accepted. 
Feb.  10,  1914.  —  An  account  sales  was  received  from  the  Harrisburg  Produce  Co., 

of  Harrisburg,  Pa.,  showing  that  after  deducting  their  com- 
mission and  other  charges  from  the  sales  of  the  shipment, 
there  were  net  proceeds  due  A.  J.  Dexter  &  Co.  of  $  750.00, 
which  amount  is  to  be  remitted  within  a  few  days.     (Enter 
in  Sales  Book,  showing  the  net  amount  of  the  sale,  and 
showing  the  items  sold.     It  is  not  necessary  to  list  the  exact 
sale  price  of  each  article  ;  merely  refer  to  the  account  sales.) 
Received  check  for  $  270.00  from  J.  W.  Boyce,  of  Allentown, 
Pa.,  being  the  balance  shown  to  be  due  in  the  account  sales 
received  on  Feb.  8. 
Mailed  check  for  $  30.00  to  the  Camden  Wagon  Co.  for  repair- 
ing and  painting  one  of  the  wagons. 
Purchased  from  B.  D.  Walker,  for  cash : 

200  bskt.  Cabbage  @  $   .20 

Purchased  from  A.  C.  Drake,  terms  2/5/30 : 
400  bu.  Potatoes  @  $   .50 

300  bu.  Onions  .52 

Purchased  from  Hansell  &  Co.,  terms  2/10/30: 
200  bx.  Oranges  @  $  3.00 

200  bx.  Lemons  2.00 

Paid  weekly  salaries,  as  follows : 
4  clerks,  each  at  $  12.00 

1  bookkeeper  15.00 

4  drivers,  each  at  10.00 

(As  A.  J.  Dexter  and  W.  H.  Warner  did  not  draw  their 
salaries,  they  are  to  be  credited,  each  for  8  25.00,  in  their 
respective  Personal  Accounts. 
Feb.  12,  1914.  —  Purchased  from  the  Phoenix  Sack  Co.,  for  cash : 

500  Potato  Sacks  @  $  .04 

(Enter  in  Purchase  Book.) 


PRINCIPAL  PROBLEM  I 


203 


» 


Purchased  from  the  Star  Box  Co.,  for  cash : 
1000  Baskets  @$  .03 

Purchased  for  cash : 
Rubber  bands,  pencils,  ink,  and  sundry  other  office  supplies,  for 

$8.00.     (Only  Cash  Book  entry.) 
Paid  in  cash  for  cleaning  office  and  windows,  $  5.00. 
Sold  to  T.  M.  Merrill,  on  account : 
20  bu.  Potatoes  @  $  .60 

10  bu.  Onions  .62 

20  bskt.  Cabbage  .30 

Sold  to  T.  N.  Hawkins,  terms  2/5/30 : 
200  bu.  Onions  @  $   .60 

200  bu.  Potatoes  .58 

Purchased  at  auction,  for  cash  : 
100  bx.  Lemons  @  $2.00 

100  bx.  Oranges  3.00 

Received  check  from  S.  Beitler  in  full  payment  for  the  principal 
and  interest  of  his  note,  received  on  Jan.  13. 
Feb.  13,  1914.  — Received  check  from  the  Harrisburg  Produce  Co.,  for  $500.00, 

to  apply  on  account. 
Received  check  from  J.  W.  Henry,  for  $150.00,  to  apply  on 

account. 
Received  check  from  A.  P.  Hill,  for  $  200.00,  to  apply  on  account. 
Sold  to  L.  Adler,  on  account : 

30  bx.  Oranges  @  $3.70 

Sold  Dawson  &  Maxwell,  terms  2/5/30 : 

100  bu.  Potatoes  @  $  .60 

50  bu.  Onions  .62 

Sold  to  T.  M.  Merrill,  on  account : 

40  bskt.  Cabbage  @  $   .30 

10  cr.  Celery  2.90 

Feb.  14,  1914.  — Received  check  for  $20.00  from  T.  M.  Merrill,  to  apply  on 

account. 
Purchased  from  D.  Howard,  on  account : 
100  bskt.  Cabbage  @  $  .22 

20  cr.  Celery  2.20 

Purchased  from  L.  Simpson  &  Co.,  terms  2/5/30 : 

200  bbl.  Apples  @  $3.50 

Purchased  from  A.  C.  Drake,  terms  2/5/30 : 
400  bu.  Potatoes  @  $   .50 

100  bu.  Onions  .52 

Purchased  from  the  Ajax  Coal  Co.,  for  cash : 
6  tons  Coal  @$6.00 


r 


iti 


t' 


204    A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Advice  was  received  from  the  Produce  National  Bank  that  they 
paid  the  60-day  interest-bearing  note  given  to  A,  C.  Drake 
on  Dec.  16. 

Received  check  from  A.  S.  Jackson  in  payment  of  the  purchase 
of  Feb.  9,  less  the  discount. 

Note.  — The  student  will  now  rule  up  the  Cash,  Sales,  and  I*urchase  Books,  and 
after  posting  the  several  books,  prepare  a  Trial  Balance  before  continuing. 

Whenever  the  amount  of  any  transaction  ends  with  one  half  of  a 
cent,  or  a  fraction  greater  than  one  half  of  a  cent,  an  extra  cent  is 
added.     Therefore,  27 1  ^  becomes  28  ^ ;  30|  ^  becomes  31  ^,  etc. 

Feb.  15,  1914.  —  Received  check  from  J.  H.  Hanmiond,  in  full  of  his  account. 

Received  check  from  B.  S.  Perkins  for  $136.00,  to  apply  on 

account. 
Mailed  check  to  Hansell  &  Co.  for  $  125.00,  to  apply  on  account. 
Mailed  check  to  A,  C.  Drake,  in  settlement  of  bill  for  purchase 

of  Feb.  10,  less  the  discount. 

Purchased  from  the  New  York  Produce  Co.,  2/5/30 : 

200  bbl.  Apples  @  $  3.90 

100  bu.  Potatoes  .50 

Purchaseil  from  L.  Simpson  &  Co.,  5/10/30: 

100  bx.  Lemons  @  $2.00 

100  bx.  Oranges  3.60 

Feb.  16,  1914. — W.  H.  Warner  had  the  bookkeeper  give  him  a  check  for  the 

balance  of  his  Personal  Account.  A.  J.  Dexter  gave  the 
business  a  check  for  an  amount  sufficient  to  close  his  Per- 
sonal Account. 
As  the  firm  has  been  carrying  too  large  a  bank  balance,  a  pur- 
chase was  made  for  cash,  of  eight  (8)  $  1000.00  bonds  of 
the  New  York  Light,  Power,  and  Heat  Co.,  with  interest 
from  Aug.  28,  1913,  at  5  %.  The  interest  periods  on  these 
bonds  are  Aug.  and  Feb.  28,  and  since  the  firm  purchased 
bonds  on  which  168  days  interest  had  accrued,  they  had 
to  pay  for  the  interest  also.  (Chai^  bonds  to  the  account 
"Stocks  and  Bonds.") 
Received  check  for  $  430.00  from  the  Harrisburg  Produce  Co., 

in  payment  of  their  10-day  acceptance  of  the  6th. 
Received  check  from  J.  Denny,  in  payment  of  his  purchase  of 

Feb.  6,  less  the  discount. 
Received  check  from  T.  P.  Hunter,  in  payment  of  his  purchase 
of  Feb.  6,  less  the  discount. 
Feb.  17,  1914. — Received  from  H.  L.  Miller,  of  Perth,  N.  Y.,  a  consignment  of 


> 


PRINCIPAL  PROBLEM   I 


205 


500  bu.  of  potatoes  to  be  sold  for  his  account.     (Make 
only  memorandum  record.) 
Gave  check  to  Pennsylvania  R.  R.  Co.,  for  $50.00,  in  payment 

of  freight  on  above  consignment. 
Received  check  for  $30.00  from  B.  D.  Harvey,  to  apply  on 

account. 
Received  check  from  T.  N.  Hawkins,  in  settlement  of  his  pur- 
chase of  Feb.  12,  less  the  discount. 
Sold  to  J.  H.  Hammond,  2/5/30 : 
95  bskt.  Cabbage  @  $  .30 

155  bu.  Potatoes  .60 

Paid  weekly  salaries  as  follows  : 
4  clerks,  eaeh  at  $12.00 

1  bookkeeper  15.00 

4  drivers,  each  at  10.00 

A.  J.  Dexter  25.00 

W.  H.  Warner  25.00 

Feb.  19,  1914.  —  Sold  H.  L.  Miller's  consignment  ^1,  of  500  bu.  of  potatoes  to 

B.  S.  Perkins,  on  account,  at  $.60  per  bushel.  This  sale  was 
recorded  in  the  Journal,  as  it  was  not  a  sale  of  the  firm's 
Merchandise.  To  record  sales  of  consignments  in  the  Sales 
Book,  a  special  column  Sales  Book  would  have  to  be  created. 
Entry  was  made  in  the  Journal  to  record  the  firm's  commission 
of  10  %  against  H.  L.  Miller's  consignment  ^1.  An  ac- 
count sales  was  made  out  and  forwarded  to  H.  L.  Miller, 
showing  him  the  sales,  expenses,  and  commission  on  his 
consignment  of  the  17th,  and  also  showing  him  the  net 
proceeds,  which  amount,  it  was  stated,  was  to  follow  in 
several  days.  Make  the  entry  necessary  to  show  the  trans- 
fer of  the  balance  of  the  consignment  Account  to  the  account 
with  H.  L.  Miller.  As  the  account  sales  acknowledged  a 
definite  amount  of  indebtedness  to  H.  L.  Miller,  it  is  neces- 
sary to  show  H.  L.  Miller  on  the  books  as  a  creditor. 
Received   check  from   Davis   &   Brown   in   payment  of  their 

acceptance  of  Feb.  9. 
Mailed  check  to  L.  Simpson  &  Co.,  in  settlement  of  purchase 

of  Feb.  14,  less  the  discount. 
Received  check  from  J.  Denny,  in  settlement  of  his  purchase  of 

Feb.  9,  less  the  discount. 
Mailed  check  to  A.  C.  Drake,  in  settlement  of  purchase  of 
Feb.  14,  less  the  discount. 
Feb.  20,  1914.  —  Received  a  second  consignment   from  H.  L.  Miller  of  Perth, 

N.  Y.,  being  420  bu.  of  potatoes,  to  be  sold  for  his  account. 


> 


206     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Paid  $  47.00  in  cash,  being  freight  on  above  consignment. 

Received  from  R.  Barker  &  Co.,  of  New  York  City,  a  consign- 
ment of  500  bbl.  of  apples,  to  be  sold  for  their  account. 

Received  from  H.  L.  Miller,  of  Perth,  N.  Y.,  a  third  consign- 
ment of  500  bu.  of  onions,  to  be  sold  for  his  account. 

Mailed  check  for  $  150.00  to  the  Pennsylvania  R.  R.  Co.,  to 
cover  freight  bill  of  $  100.00  on  R.  Barker's  consignment 
#  1,  and  $  50.00  on  H.  L.  Miller's  consignment  #  3. 

Mailed  check  to  Hansell  &  Co.,  in  settlement  of  purchase  of 
the  10th,  less  the  discount. 

Mailed  check  to   New  York   Produce  Co.,  in   settlement  of 
purchase  of  the  15th,  less  the  discount. 
Feb.  21,  1914.  —  Received  check,  for  $  48.00,  from  B.  D.  Harvey,  in  fuU  of  his 

account. 

Received  check  from  T.  M.  Merrill  for  $45.20,  in  full  of  hia 
account. 

Paid  $10.00  in  cash  for  recoopering  some  of  the  barrels  in 
R.  Barker  &  Co.'s  consignment. 

Paid  $  15.00  in  cash  for  extra  labor  to  sort  out  some  of  the 
bad  apples  in  R.  Barker  &  Co.'s  consignment. 

Received  30-day  note,  dated   Feb.  20,  from  A.  P    Hill,  for 
$  1000.00. 
Feb.  22,  1914.  —  The  bank  returned  T.  M.  Merrill's  check  for  $  45.20,  deposited 

on  Feb.  21,  as  T.  M.  Merrill's  bank  would  not  honor  the 
check.  The  firm's  check  for  this  amount  was  made  out 
and  given  to  the  bank,  who  then  turned  over  the  returned 
check  of  T.  M.  Merrill.  A.  J.  Dexter  went  to  MerriU'g 
office  to  have  the  check  cashed,  but  found  the  office  closed, 
as  Merrill  had  failed.  It  was  ascertained  that  Merrill 
had  no  assets,  so  Dexter  advised  the  bookkeeper  to  write 
Merrill's  account  otf  to  the  account  "Bad  Debts." 

Sold  to  L.  Haines,  for  cash : 


40  bx.  Oranges 
10  bx.  Lemons 
5  bbl.  Apples 
Sold  to  J.  Denny,  2/5/30 : 
200  bu.  Potatoes 
100  bu.  Onions 
80  bx.  Oranges 


@$4.25 
2.40 
4.40 

@$  .60 

.62 

4.20 


Advice  was  received  from  the  Produce  National  Bank  that 
they  honored  the  firm's  30-day  acceptance,  dated  Jan.  23. 

Received  check  from  J.  H.  Hammond  in  settlement  of  bill  of 
Feb.  17,  less  the  discount. 


tl 


^1 


PRINCIPAL  PROBLEM   I 


207 


Feb.  23,  1914.  —  The  bank  returned  B.  D.  Harvey's  check  for  $48.00,  de- 
posited on  Feb.  21.  The  amount  of  Mr.  Harvey's  account 
was  not  sufficient  to  meet  the  check.  The  bank  was  given 
the  firm's  check  in  exchange  for  B.  D.  Harvey's  check. 

Sold  H.  L.  Miller's  consignment  #  2,  of  420  bu.  of  Potatoes, 
for  cash,  at  $  .62  per  bushel.     (Cash  Book  entry  only.) 

H.  L.  Miller's  consignment  #  2  was  charged  with  the  commission, 
and  a  check  for  the  net  proceeds  was  mailed  to  H.  L. 
Miller,  along  with  account  sales. 

Received  check  from  B.  S.  Perkins  for  $300.00,  to  apply  on 
account. 

Mailed  check  to  H.  L.  Miller,  of  Perth,  N.  Y.,  for  the  net 
proceeds  of  his  consignment  #1,  as  shown  in  the  account 
sales  rendered  him  on  Feb.  19. 
Feb.  24,  1914.  — Shipped  to  J.  W.  Boyce,  of  Allentown,  Pa.,  500  bu.  of  pota- 
toes to  be  sold  for  the  firm's  account.  (Only  memorandum 
record.) 

Shipped  to  the  Harrisburg  Produce  Co.,  of  Harrisburg,  300  bbl. 
apples,  to  be  sold  for  the  firm's  account. 

Prepaid  the  freight  on  the  above  two  shipments  by  giving  check 
to  the  Pennsylvania  R.  R.  Co.  for  $160.00.  (Charge  to 
Merchandise  Account.) 

Purchased  from  the  A.  S.  Cassel  Feed  Co.,  on  account,  Hay, 
Straw,  etc.,  for  the  stable,  $30.00. 

Sent  check  to  veterinarian  for  $25.00  for  treatment  of  two 
sick  horses. 

Sold  300  bbl.  of  apples  from  R.  Barker  &  Co.'s  consignment 
to  A.  S.  Jackson,  on  account,  @  $4.40. 

Sold  H.  L.  Miller's  consignment  #3,  500  bu.  of  onions,  to 
R.  H.  Fow  &  Co.,  on  account,  @  $.63. 

Made  the  entry  to  charge  the  commission  to  H.  L.  Miller's  con- 
signment ijf  3.     An  account  sales  was  rendered  H.  L.  Miller 
'  for  his  consignment  ^  3,  and  it  is  stated  that  the  net  proceeds 
would  follow  in  several  days. 

Mailed  check  to  L.  Simpson  &  Co.,  in  settlement  of  bill  of 
Feb.  15,  less  the  discount. 

Received  check  from  Harrisburg  Produce  Co.,  in  settlement  of 
their  acceptance  of  the  26th  ultimo. 

Paid  weekly  salaries  as  per  pay  roll  of  Feb.  17. 
Feb.  26,  1914.  —  B.  D.  Harvey,  whose  check  was  returned  by  the  bank,  failed, 

and  a  settlement  of  his  affairs  procured  for  each  creditor 
33^^  on  the  dollar.  Accordingly,  a  check  was  received 
to-day  for  $16.00,  to  be  applied  to  B.  D.  Harvey's  account. 


Feb.  27,  1914.— 


i 


208     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Dexter  advised  the  bookkeeper  to  close  the  balance  into  the 

account  "  Bad  Debts." 
Sold  the  remaining  200  bbl.  of  apples  in  R.  Barker  &  Co.'s 

consignment  for  cash,  @  $4.00  per  bbl. 
Received  check  from  A.  S.  Jackson  for  $1320.00,  to  apply  on 

account 

Charged  the  commission  to  R.  Barker  &  Co.'s  consignment,  and 
mailed  check  for  the  net  proceeds. 

Mailed  check  to  H.  L.  MiUer  for  the  net  proceeds  of  his  consign- 
ment #  3,  as  acknowledged  in  accoimt  sales  dated  Feb.  24. 

Received  check  from  L.  Haines,  in  full  of  account. 

Received  check  from  Dawson  &  Maxwell,  in  full  of  account 

MaOed  check  to  D.  Howard,  in  full  of  account. 

Received  check  from  L.  Adler,  in  full  of  account 

Received  check  from  J.  Denny,  in  settlement  of  bill  of  Feb.  22 
less  the  discount.  * 

Mailed  check  to  Hansell  &  Co.,  for  $400.00,  to  apply  on  ac- 
count 

Sold  to  Dawson  &  Maxwell,  on  account : 

200  bskt  Cabbage  @  $  .30 

Sold  to  A.  P.  Hill,  on  account  : 
300  bu.  Potatoes  @  $  .60 

369  bu.  Onions  g2 

Sold  to  T.  N.  Hawkins,  2/5/30 : 
300  bx.  Oranges  @  $3.50 

400  bx.  Lemons  2.40 

Mailed  check  to  the  Excelsior  Elevator  Co.,  for  $500.00,  for 
placing  two  freight  elevators  in  the  buUding.     This  expen- 
diture has  increased  the  value  of  the  building. 
Mailed  check  to  A.  P.  Brown,  for  $75.00,  for  having  repaired 

the  iron  awning  in  front  of  the  store. 
Received  an  account  sales  from  J.  W.  Boyce,  of  AUentown, 
Pa.,  showing  net  proceeds  of  $290.00  due  from  the  sale 
of  the  500  bu.  of  potatoes  shipped  him  on  the  24th.     The 
net  proceeds  is  to  follow  in  30  days. 
Received  an  account  sales  from  the  Harrisburg  Produce  Co.,  for 
the  shipment  of  300  bbl.  of  apples  sent  them  on  Feb.*24. 
The  net  proceeds,  $1320.00,  is  to  be  remitted  in  10  days. 
Paid  the  following  bills  by  check  : 
Telephone  $8  00 

^^  5.00 

Electricity  7  5Q 

Telegraph  s^qq 


Feb.  28,  1914.— 


PRINCIPAL  PROBLEM   I 


209 


Received  check  for  $200.00  from  the  New  York  Light,  Power, 
and  Heat  Co.,  being  six  months'  interest  at  5  %,  due 
Feb.  28,  1914,  on  the  eight  (8)  $1000.00  bonds  of 
that  company,  standing  in  the  name  of  A.  J.  Dexter  &  Co. 

1.  Total  and  rule  the  Cash,  Sales,  and  Purchase  Books. 

2.  Post  and  take  a  Trial  Balance  as  of  Feb.  28,  1914. 

3.  Make  the  necessary  Journal  entries  to  close  all  the  nominal 
accounts  into  the  Profit  and  Loss  Account.  Close  the  Profit  and 
Loss  Account  into  the  Proprietors'  Personal  Accounts,  and  close 
these  in  turn  into  their  respective  Capital  Accounts.  The  subsidi- 
ary data  necessary  to  the  proper  closing  of  the  books  follows : 


Inventory  of  Merchandise,  taken  at  Last  Cost  Price 


200  bu.  Potatoes 
261  bbl.  Apples 
300  bu.  Onions 
80  bx.  Oranges 
422  bx.  Lemons 
100  bskt.  Cabbage 


@$  .50 
3.90 

.52 
3.60 
2.00 

.22 


One  month  of  the  advertising  and  insurance  contracts  has  expired. 
Depreciation  for  one  month  is  to  be  provided  for,  by  creating  a 
Reserve  for  Depreciation  on  each  of  the  following  accounts : 

Buildings  (annual  depreciation)  4  % 

Horses  and  Wagons  (annual  depreciation)  10  % 

Furniture  and  Fixtures  (annual  depreciation)  10  % 

A  "Reserve  for  Bad  Debts"  for  one  month  on  the  tot^l  Ac- 
counts Receivable  is  to  be  created  on  the  basis  of  12%  per  annum. 

One  half  of  the  weekly  salaries  have  accrued  and  should  be  con- 
sidered in  ascertaining  Profit  and  Loss. 

4.    Balance  and  rule  all  the  accounts  on  the  Ledger. 

6.  Prepare  a  "  Statement  of  Profit  and  Loss  "  following  the  pro 
forma  outline  given  below ;  also  prepare  a  "  Balance  Sheet,"  follow- 
ing the  more  approved  form  of  listing  the  assets  in  the  order  of 
their  importance,  also  deducting  the  amount  of  any  reserve  from 
the  value  of  the  particular  assets  so  affected. 


210     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Pro  Forma  Outline 
Statement  of  Profit  and  Loss 


A.  J.  Dexter  &  Company 


February  28,  1914 


II  • 


u  * 


fi 


Sales       • 

Less  discounts  allowed 
Inventory,  Jan.  31,  1914 
Purchases 

Less  discounts  received 

Less  Inventory,  Feb.  28,  1914 
Gross  Profit  on  Merchandise 
Less 

Stable  Expense 
Expense 
Repairs 
Salaries 
Insurance 
Advertising 
Bad  Debts 

Reserve  for  Depreciation : 
On  Buildings 
On  Horses  and  Wagons 
On  Furniture  and  Fixtures 
Reserve  for  Bad  Debts 
Net  Profit  on  Merchandise 
Add 

Interest  Received 
Commission  Received 
Net  P*rofit  of  business 
Distribution  of  Profit 
A.  J.  Dexter 
W.  H.  Warner 


I 


Ledger  Index 

The  following  table  shows  the  amount  of  space  to  be  allowed  each  account  in 
the  Ledger,  for  the  A.  J.  Dexter  problem  : 


Adler,  L. 
Advertising 
Andrews  &  Hemphill 
Bad  Debts 


1/4  of  page  19 
1/3  of  *'  12 
1/4  of  "  24 
1/3  of    "     13 


Barker,  R.,  &  Co.,  Consign- 
ment i  1 
Beitler,  S. 
Boyce,  J.  W. 


1/3  of  page  28 
1/3  of  "  21 
1/2  of    *»    22 


PRINCIPAL  PROBLEM  I 


211 


Buildings 

Cash  All 

Cassel,  A.  S.,  Feed  Co. 

Collection  &  Exchange 

Commission 

Davis  &  Brown 

Dawson  &  Maxwell 

Denny,  J. 

Dexter,  A.  J. 

Dexter,  A,  J.,  Personal 

Discount 

Drake,  A.  C. 

Expense 

Fow,  R.  H.,  &  Co. 

Furniture  &  Fixtures 

Haines,  L. 

Hammond,  J.  H. 

Hansen  &  Co. 

Harrisbuig  Produce  Co. 

Harvey,  B.  D. 

Hawkins,  T.  N. 

Henry,  J.  W. 

Hill,  A.  P. 

Horses  &  Wagons 

Howard,  D. 

Hunter,  T.  P. 

Insurance 

Interest 

Inventory 

Jackson,  A.  S 

Land 


1/3  of 

page  25 

Merchandise 

AUof 

page    5                          1 

of  pages  3  &  4 

Merchandise  Discount 

1/2  of 

i( 

10 

1/3  of 

page  15 

Merchandise     Inventory. 

1/3  of 

12 

(See  Inventory) 

1/3  of 

6 

Merrill,  T.  M. 

1/3  of 

t( 

25 

1/4  of 

24 

Miller,  H.  L. 

1/4  of 

26  1 

27  ' 

1/3  of 

21 

Miller,  H.  L.,  Con.  #1 

1/3  of 

(( 

1/2  of 

20 

Miller,  H.  L.,  Con.  #2 

1/3  of 

27 
27 

1/2  of 

1 

Miller,  H.  L.,  Con.  #3 

1/3  of 

1/2  of 

1 

New  York  Produce  Co. 

1/2  of 

23 

1/3  of 

11 

Notes  Payable 

1/2  of 

16 

1/2  of 

17 

Notes  Receivable 

1/2  of 

16 

1/2  of 

10 

Perkins,  B.  S. 

1/2  of 

18 

1/4  of 

24 

Produce  Cartage  Co. 

1/4  of 

19 

1/3  of 

7 

Profit  and  Loss 

1/2  of 

14 

1/4  of 

26 

Rent 

1/3  of 

7 

1/3  of 

21 

Repairs 

1/3  of 

12 

1/2  of 

17 

Reserve  for  Bad  Debts 

1/3  of 

16 

1/2  of 

22 

Reserve  for  Depreciation, 

i 

1/3  of 

25 

Bldgs. 

1/3  of 

13 

1/2  of 

18 

Reserve  for  Depreciation, 

1/4  of 

26 

Fur.  &  Fixtures 

1/4  of 

14 

1/4  of 

26 

Reserve  for  Depreciation, 

n 

1/3  of 

7 

Horses  &  Wagons 

1/4  of 

14                          1 

9                          " 

1/4  of 

19 

Salaries 

All  of  page 

1/2  of 

20 

Simpson,  L.,  &  Co. 

1/2  of 

(( 

23                y. 

1/3  of 

13 

Stable  Expense 

All  of  page 

«           1 

1/3  of 

11 

Stocks  &  Bonds 

1/2  of 

(( 

4                 ill 

1/3  of 

11 

Warner,  W.  H. 

1/2  of 

(( 

2 

1/4  of 

19 

Warner,  W.  H.,  Personal 

1/2  of 

(( 

2 

1/3  of 

6 

Woodruff,  P. 

1/4  of 

t( 

24 

1 

1 

1 

212     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


PRINCIPAL   PROBLEM   n 

H.  C.  Burns  &  Co. 
Books  to  be  Used 


Purchase  Book 
Sales  Book 
Cash  Book 
Petty  Cash  Book 
Journal 

Customers' 

Creditors* 

General 


Books  of  Original  Entry 


Ledgers 


Accounts  to  be  opened  in  the  General  Ledger 


Wages 

Superintendence 

Engineers  and  Firemen 

Tin 

Copper 

Sand 

Crucibles 

Oil 

Coke 

Freight 

Insurance 

Real  Estate 

Buildings 

Repairs  to  Machinery 

Repairs  to  Boilers 

Repairs  to  Buildings 

Stable  Expense 

Phosphorus 

Stationery  and  Printing 

H.  C.  Bums,  Personal  a/c 

Edwin  Moore,  Personal  a/c 

F.  H.  Hale,  Personal  a/c 

H.  C.  Bums,  Capital  a/c 

Edwin  Moore,  Capital  a/c 

F.  H.  Hale,  Capital  a/c 


Zinc 

Coal 

Lime 

Iron 

Office  Salaries 

Office  Supplies 

Discount  on  Notes 

Sales,  Iron  Castings 

Sales,  Sand  Blast  Castings 

Sales,  Brass  Castings 

Sales,  Phos.  Bronze  Castings 

Discount  on  Sales 

Discount  on  Purchases 

Machinery 

Boilers 

Tools 

Horses  and  Wagons 

Furniture  and  Fixtures 

Cash 

Petty  Cash 

Notes  Receivable 

Notes  Payable 

Accounts  Receivable 

Accounts  Payable 


PRINCIPAL  PROBLEM  II 


213 


The  student  will  open  additional  accounts  as  may  be  required 
and  will  prepare  the  original  entry  books  on  blank  sheets  of  paper, 
the  rulings  for  the  set  being  identical  with  the  illustrations  given  in 
Chapter  24.  The  student  will  use  the  remaining  portion  of  the 
ledger  blank  of  the  A.  J.  Dexter  problem  for  his  General  Ledger, 
opening  three  accounts  to  the  page.  The  Customers'  and  Cred- 
itors' Ledgers  may  be  kept  on  cards  or  in  a  separate  ledger  book, 
but  in  either  case  care  should  be  taken  that  they  are  kept  apart,  as 
each  is  a  distinct  Ledger  and  includes  a  special  class  of  accounts. 

July    1,  1913. — H.  C.  Bums  &  Co.  this  day  start  in  the  foundry  business  with 

a  cash  capital  of  $125000.00,  divided  as  follows:  H.  C. 
Bums,  $50000.00;  Edwin  Moore,  $50000.00;  and  F.  H. 
Hale,  $25000.00.  F.  H.  Hale,  on  account  of  his  knowl- 
edge of  the  business,  is  to  share  equally  with  the  others, 
thus  making  an  equal  division  of  losses  and  gains  between 
the  three  partners. 

July    2,  1913. — Purchased  from  the  City  Real  Estate  Co.,  a  plot  of  ground 

valued  at  $60000.00  with  a  foundry  thereon  valued  at 
$15000.00  for  $75000.00.  Paid  for  the  above  with 
check  for  $50000.00,  and  a  note  at  45  days  for  $25000.00. 
Interest  on  note  6  %. 

July    3,  1913.  —  Purchased  of  the  Penn  Foundry  Co.  (the  former  lessee  of  the 

plant),  on  account,  boiler  appraised  at  $5000.00  and  ma- 
chinery appraised  at  $15,000.00  for  $20,000.00.  Also 
purchased  cmcibles  for  $1000.00  and  miscellaneous  tools 
for  $500.00. 

July    5,  1913. — Purchased  of  Stationery  Supply  Co.,  on  account,  office  furniture 

for  $1000.00.  Purchased  from  Philadelphia  Horse  Ex- 
change, horses  for  $500.00.  Paid  cash  on  account  to  Penn 
Foundry  Co.,  $20,000.00. 

July    6,  1913. — Drew  for  petty  cash  $  100.00.     Bought  ledger  paper,  bill  heads, 

and  envelopes  from  Chestnut  Stationery  Co.,  to  amount  of 
$100.00,  on  %.     Paid  expressage,  $.50,  from  petty  cash. 

July    8,  1913. — Paid  Stationery  Supply  Co.  bill  of  5th  inst.,  being  allowed  2  % 

for  cash.  Purchased  from  United  States  Sand  Co.,  3  tons 
of  sand  at  $  1.50  per  ton. 

July    9,  1913. — Purchased  of  Camden  Coke  Co.,  100  tons  of  coke  at  $2.50  per 

ton.  Purchased  of  Pittsburg  Copper  Co.,  10000  lb.  of 
copper  at  $.13  per  pound. 

July  11,  1913.— Purchased  of  Texas  Oil  Co.,  5000  gal.  of  fuel  oU  at  5^  per 

gallon.  Gave  note  at  30  days,  bearing  5%  interest  to 
Penn  Foundry  Co.,  for  balance  of  account. 


214    A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


ii 


I 


July  13,  1913.- 
July  15,  1913. 


July  16,  1913.— 


July  18,  1913.— 


July  19,  1913.— 

July  20,  1913.— 
July  22,  1913.— 
July  23,  1913.— 
July  25,  1913.— 


July  29,  1913.— 


July  31,  1913  — 


Purchased  of  Allentown  Iron  Co.,  160  pigs  of  iron  at  $15.00 
per  ton.     (100  lb.  to  a  pig.     Ton  =  2000  lb.) 

Pay  roll  for  one  half  of  month  of  July  is  as  follows : 

Foundry  hands         $300.00  Foreman         $60.00 

Office  Salaries  100.00  Engineer  30.00 

H.  C.  Bums  drew  $50.00  on  account. 

Sold  Peter  Henderson  250  lb.  iron  castings  at  3^,  and  300  lb. 
sand  blast  castings  at  5  i. 

Purchased  of  Delaware  Zinc  Co.,  12000  lb.  zinc  at  6^  per 
pound. 

Purchased  of  Slatington  Coal  Co.,  100  tons  egg  coal  at  $5.10 
per  ton. 

Purchased  of  Keystone  Phosphorus  Co.,  300  lb.  phosphorus  at 
25^  per  pound.  Sold  John  Johnson  50  lb.  brass  castings 
from  special  patterns  at  28^  per  pound.  Paid  in  cash  bill 
of  Philadelphia  Horse  Exchange,  being  allowed  1  %  for  pay- 
ment within  15  days. 

Received  check  from  Peter  Henderson  in  full  payment  for  his 
account.  Sold  Samuel  Jackson  100  lb.  brass  castings  at 
25^,  and  280  lb.  iron  castings  at  3^  per  pound. 

Bought  of  Camden  Wagon  Co.,  delivery  wagon  for  $200.00. 

Bought  of  Kensington  Harness  Co.,  harness  for  $100.00. 

Purchased  for  cash  from  petty  cash,  stamps  $10.00,  rubber 
bands  $1.00,  pens  $1.00,  and  pencils  $.75. 

Paid  factory  insurance  premium,  $200.00.  The  policy  is  for 
one  year  and  dates  from  July  1,  1913. 

Received  check  from  John  Johnson  for  his  account  in  frdl. 

Sold  Peter  Smith  1000  lb.  iron  castings  at  3^;  500  lb.  sand 
blast  castings  at  5  ^ ;  and  200  lb.  phos.  bronze  castings  at 
29|^.     Received  in  settlement  his  30-day  note,  5  %. 

Received  bill  from  Eastern  Livery  &  Sales  Co.,  for  feed 
delivered  during  Jidy:  2  bags  oats  at  $1.20  per  bag; 
200  lb.  hay  at  $.90  per  100  lb. ;  100  lb.  bran  at  $1.15 
per  100  lb. ;  200  lb.  cracked  com  at  $1.30  per  100  lb. ; 
200  lb.  straw  at  $1.10  per  100  lb. 

Pay  roll  for  last  half  of  month  is  as  follows : 

Foundry  hands        $500.00  Foreman        $80.00 

Office  Salaries  100.00  Engineer  30.00 

Stableman  (full  month)  76.00 

Partners  drew  on  account  the  following : 
H.  C.  Bums  $  25.00 

F.  H.  Hale  25.00 

Edwin  Moore  100.00 


PRINCIPAL  PROBLEM  II 


215 


The  student  will  now  total  the  columns  of  the  original  books, 
post  to  the  ledgers,  and  take  off  a  Trial  Balance  from  the  General 
Ledger.  The  Petty  Cash  book  in  this  month  is  to  be  posted  by 
means  of  the  "  Imprest "  system. 


Aug.    1,  1913.— 


Aug.    2,  1913.— 


Aug.    4,  1913.— 

Aug.    6,  1913. 
Aug.    9,  1913.- 

Aug.  10,  1913. 

Aug.  12,  1913. 

Aug.  14,  1913.. 


Aug.  16,  1913. 
Aug.  18,  1913. 

Aug.  19,  1913. 
Aug.  21,  1913.- 


Sold  Peter  Henderson  500  lb.  iron  castings  at  3^,  and  250  lb. 

phos.  bronze  castings  at  29^^. 
One  horse  died ;  value  $  150.00.     (No  entry  at  this  time.) 
Bought  of  Philadelphia  Horse  Bazaar,  one  horse  at  $200.00. 
Note  of  James  Dickson,  which  H.  C.  Bums  &  Co.  had  indorsed, 

went  to  protest,  and  they  were  compelled  to  pay  its  full 

value  $20000.00  together  with  protest  fees  of  $5.00.     As 

James  Dickson  has  failed  and  has  no  assets,  write  off  the 

claim  against  him  to  "  Bad  Debts." 
Allentown  Iron  Co.  offers  500  pigs  of  iron  (100  lb.  per  pig)  at 

$14.00  per  ton,  for  spot  cash.     Offer  accepted. 
-Paid  bill  of  Allentown  Iron  Co.  of  4th  instant. 
•Sold  James  Jamison  1000  lb.  iron  castings  at  3^,  and  500  lb. 

brass  castings  at  28  ^. 
Bought  of  Texas  Oil  Co.,  5000  gal.  of  fuel  oil  at  4f  ^  per  gallon. 
Paid  note  of  Penn  Foundry  Co.  due  today,  with  full  interest. 
-Sold  Chas.  Peters  600  lb.  phos.  bronze  castings  at  29^. 
Paid  from  petty  cash  for  hauling  away  dirt  and  mbbish,  $5.00. 
Pay  roll  for  one  half  month  is  as  follows : 
Foundry  wages         $600.00  Foreman         $80.00 

Office  salaries  100.00  Engineer  30.00 

Partners  drew  on  account  as  follows : 

F.  H.  Hale  $250.00 

•  H.  C.  Bums  150.00 

Edwin  Moore  500.00 

Paid  sundry   private  bills   for   H.    C.    Bums   amounting   to 

$375.00. 
■  Paid  note  for  real  estate  due  to-day,  interest  6%. 
Received  cash  from  S.  Jackson  for  bill  of  July  19th. 
Sold  Jack  Jackson  500  lb.  brass  castings  at  28^;   200  lb. 

phos.  bronze  (special)  at  30  ^ ;  and  1000  lb.  iron  castings 

at  4  ^  per  pound. 
Paid  bill  of  Philadelphia  Horse  Bazaar. 
Paid  for  repairs  to  the  foundry  building,  $  1000.00. 
P.  Henderson  paid  his  bill  of  August  1st.     Chas.  Peters  paid 

his  bill  of  August  12th,  less  10  %  discount. 
Sold  P.  Henderson  1000  lb.  iron  castings  at  3  ^  per  pound,  and 

1000  lb.  brass  castings  at  28  ^  per  pound. 


216     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


\i 


Aug.  23,  1913. 


Aug.  25,  1913.— 


Aug.  26,  1913.— 


Aug.  31,  1913. 


-  Sold  J.  Johnson  200  lb.  iron  castings  at  5  ^  per  pound. 
Sold  Peter  Smith  500  lb.  phos.  bronze  casting  at  30  ^  per  pound. 
Received  check  from  him  in  settlement  (51  his  note  with  inter- 
est in  full. 

Paid  bill  of  United  States  Sand  Co.  of  July  8th ;  Camden 

Coke  Co.,  July  9th  ;  and  Pittsburg  Copper  Co.,  July  9th 
Paid  bill  of  Texas  Oil  Co.  of  July  1 1th. 
Bought  100  bu.  lime  at  28  ^  from  Germantown  Lime  Co. 
Paid  $5.00  for  cleaning  of  office  windows;  $2.00  for  rubber 
bands;  $1.50  for  ink;  $1.00  for  pens;  and  $10.00  for 
oats  and  com. 
Pay  roU  for  last  half  of  month  is  as  follows  : 
Foundry  hands        $  600.00  Foremen  $  80.00 

Office  Salaries  100.00  Engineer    30.00 

Stableman  (full  month)  75  qq 

Sent  check  to  New  York  Life  Insurance  Co.  for  premium  of 
insurance  of  Edwin  Moore,  $  100.00,  and  charged  it  to  his 
account. 

Sold  for  $  1000.00  cash  one  of  the  boilers  in  Plant  Account. 

Post  and  take  a  Trial  Balance.  In  posting  "Petty  Cash,"  use 
the  original  entry  method. 

Data  for  Closing  the  Books  of  H.  C.  Bums  &  Co. -On  the 
evening  of  Aug.  31,  H.  C.  Burns  &  Co.  take  an  inventory  of 
materials  and  supplies  on  hand,  under  the  personal  supervision  of 
Edwin  Moore.  The  following  comprises  the  inventory,  either  in 
the  shape  of  raw  material  or  in  the  process  of  manufacture,  all  of 
which  IS  priced  on  the  average  cost : 


25  tons  Iron 
7000  lb.  Copper 
10,000  lb.  Zinc 
60  tons  Coal 
4000  gal.  Oil 
95  bu.  Lime 
97  tons  Coke 
205  lb.  Phosphorus 


@$  14.15  per  ton 

.13  per  pound 
.06  per  pound 

5.10  per  ton 
.04}  per  gallon 
.28  per  bushel 

2.50  per  ton 
.25  per  pound 


$353.75 
910.00 
600.00 
306.00 
190.00 

26.60 
242.50 

51.25 


NoTB.  -  (1)  Extend  the  inventory  and  journalize  same,  charging  total  to  Inven- 

re«altmg  balance,  thus  closing  each  account. 

^(2)  Write  off  the  nominal  accounts  to  Profit  and  Loss  Account,  thus  closing  each 


one. 


PRINCIPAL  PROBLEM  II 


217 


The  wear  on  Crucibles  being  great,  $  250.00  is  charged  to  Profit 
and  Loss,  crediting  Crucible  Account. 

Bad  Debts  Account  is  written  off  to  Profit  and  Loss.  Credit 
Horses  and  Wagons  for  i|150.00,  at  the  same  time  debiting  Profit 
and  Loss  for  the  value  of  the  horse  that  died  on  August  1st. 

A  bill  for  taxes  that  was  pigeon-holed  by  mistake  is  found 
The  amount  of  the  bill  is  $  817.17. 

Edwin  Hale  placed  orders  for  sales  of  pig  iron  on  account  of  the 
Pottstown  Iron  xMines  Co.  The  commission  for  these  sales  is 
Ir  315.15  and  is  owing  to  the  firm. 

A  serious  error  is  discovered  in  the  pay-roll  department.  Nine 
men,  whose  total  wages  amount  to  ^f  260.00,  were  left  off  the  last 
pay  roll  by  mistake. 

833.33  of  the  insurance  is  charged  to  Profit  and  Loss.  The 
balance  is  a  Financial  Account. 

The  balance  of  Profit  and  Loss  Account  is  divided  equally  amon? 
the  three  partners,  and  is  closed  into  their  Personal  Accounts. 

The  partners'  Personal  Accounts  are  closed  into  the  partners' 
Capital  Accounts. 

Take  off  a  Balance  Sheet  in  proper  form  after  the  books  are 
closed. 


218    A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


PRINCIPAL  PROBLEM  III 


219 


I 


PRINCIPAL  PROBLEM  m 

MuDD,  Clay  &  Co. 

The  student  will  use  the  General,  Customers',  and  Creditors' 
Ledgers,  all  three  of  which  may  be  placed  in  the  same  Ledger,  pro- 
vided it  be  divided  into  three  parts.  The  original  entry  books  will 
be  ruled  by  the  student  on  blank  sheets,  as  per  the  instructions 
below. 

General  Ledger  Accounts  to  be  Used 


Henry  Mudd 

Charles  Clay 

William  Green 

William  Green,  Personal 

Cash 

Petty  Cash 

Machinery 

Tools 

Horses  and  Carts 

Furniture  and  Fixtures 

Investment 

Accounts  Receivable 

Notes  Receivable 

Loan  Account 

Accounts  Payable 

Notes  Payable 

Kaolin 

Goal 

Packing  Material 

Bent 

Stationery  and  Printmg 

Engine  Supplies 


Factory  Expense 
Light,  Heat,  and  Power 
Repairs  to  Machinery 
Repairs  to  Tools 
Stable  Expense 
Office  Supplies 
Postage 
Freight 

Charities  and  Donations 
Office  Salaries 
Superintendence 
Wages 
Discount 
Advertising 
Insurance 
Commission 
Legal  Fees 

Discount  on  Purchases 
Packing 
Sales  Pottery 
Bad  Debts 

Other  accounts  to  be  opened 
as  occasion  requires. 


Instructions  for  Ruling  the  Original  Entry  Books  and  the  Columnar 

Headings 

The  Purchase  Book  is  ruled  with  eleven  money  columns  and  one 
sundry  column  besides  ordinary  requirements  as  regards  date  and 
explauatioQ,     Columu  headings  are  as  follows :  Date  ;  Ledger  Folio; 


Account;  Explanation;  Amount  Credit;  Kaolin;  Coal;  Engine 
Supplies;  Packing  Material;  Repairs  to  Machinery;  Repairs  to 
Tools;  Stable  Expense;  Advertising;  Stationery  and  Printing; 
Sundries  Amount;  Account;  Ledger  Folio. 

The  Sales  Book  is  ruled  with  columns  similar  to  the  Purchase 
Book,  with  column  headings  as  follows : 

Date;  Ledger  Folio;  Account;  Explanation;  Amount  Debit; 
Sales ;  Packing. 

The  General  Journal  is  ruled  in  columnar  form  with  the  explana- 
tion column  in  the  center,  and  three  money  columns  to  the  left  and 
right.     Column  headings,  reading  from  left  to  right,  are  as  follows : 

Customers'  Ledger ;  Creditors'  Ledger  ;  General  Ledger ;  Folio ; 
Explanation ;  Folio ;  General  Ledger ;  Creditors'  Ledger ;  Custom- 
ers' Ledger. 

The  Cash  Book  is  ruled  with  both  sides  conforming  to  the  same 
ruling.     The  columns  are  headed  as  follows : 

Date;  Ledger  Folio;  Account;  Explanation;  Net  Cash;  Dis- 
count; Customers' Ledger ;  Creditors' Ledger;  General  Ledger. 

The  Petty  Cash  Book  is  ruled  the  same  as  the  Purchase  Book 
with  memorandum  receipt  column  to  the  left.  Columns,  reading 
from  left  to  right,  are  as  follows  : 

Receipts  (subdivided  into  Date  and  Amount) ;  Date ;  Explana- 
tion;  Amount  Credit ;   Postage;  Factory  Expense  ;  Office  Supplies. 

The  student  wUl  enter  the  following  transactions  in  the  proper 
books : 


Jan.    1,  1914.— 


Jan.    3,1914.— 


Henry  Mudd,  Charles  Clay,  and  WiUiam  Green  have  this  day 
formed  a  partnership  under  the  firm  name  of  Mudd,  Clay 
&  Co.  for  the  purpose  of  engaging  in  the  production  of 
pottery  and  chinaware.  The  capital  of  the  firm  is 
$50000.00,  of  which  Mudd  invests  $20000,  Clay 
$20000.00,  and  Green,  $10000.00. 

Profits  are  to  be  shared  in  proportion  to  the  capital  invested. 
The  above  capital  is  paid  in  by  the  several  partners  in  cash. 

Rented  from  John  Doe  a  manufacturing  site,  with  buildings,  for 
$3000.00  per  annum,  and  sent  check  for  one  month's  rent 
in  advance. 

Purchased  from  the  Climax  Machine  Co.,  boiler  and  machinery 
for  $25000.00. 

Purchased    of    the    Office    Furniture    Co.,    office    furniture 
$2000.00, 


220     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 


Jan.    6,  1914.— 


Jan.    8,1914.— 


Jan.  11,  1914.— 


Jan.  13,  1914.— 


Jan.  15,1914.— 


Jan.  17,  1914.— 


Jan.  19,  1914. 


Jan.  22,  1914. 


Jan.  24,  1914 


Purchased  from  the  New  Tool  Co.,  tools  aggregating  in  value 

$3000.00. 
Discounted  the  firm's  note  at  the  Merchants'  National  Bank  for 

$50000.00.     Terra  of  note,  30  days ;  discount  rate,  6  %. 
(Use  30  days  as  basis  for  discount  computation.) 
Paid  Climax  Machine  Co.'s  bill  of  3d,  being  allowed  3%  dis- 
count for  cash. 
Ordered  of  the  Bituminous  Coal  Co.,  270  tons  of  coal  at  $  2.50 
per  ton  ;  payment  to  be  made  on  receipt  of  cars.     (No  entry 
in  Purchase  Book  until  coal  is  delivered.) 
Purchased  from  J.  H.  Jones,  oil  and  waste  for  use  in  engine 

room,  $50.00. 
Bought  of  Potter's   Clay  Co.,   500   tons  kaolin,   $5000.00. 

Terms,  2  %  in  10  days. 
First  car  of  coal  received  on  onler  of  8th ;  weight,  47  tons. 
(Enter  in  Purchase  Book,  then  in  Cash  Book  —  see  8th.) 
Purchased  of  L.  J.  Black,  12500  packing  crates,  together  with 

straw,  $1250.00. 
Bought  of  Holt  &  Bums,  700  tons  kaolin  $7700.00.     Gave 
note  in  payment  of  same.     Sold  M.  S.  Pearce  1500  crates 
of  pottery  at  $2.50  per  crate.     Charged  10%  additional 
for  packing. 
Paid  factory  hands,  $400.00.     Paid  engineers'  wages,  $  150.00. 
Purchased  of  A.  K.  Root,  1000  tons  kaolin,  $  15000.00. 
Received  last  five  cars  of  coal,  ordei-ed  on  8th  ;  weight,  229  tons. 
Sold  to  The  World's  Department  Store  Co.,  1000  crates  of  pottery 

at  $3.00  per  crate.     Charged  them  $250.00  for  packing. 
Bought  of  the  Eastern  Horse  Exchange,  draft  horses,  $  1000.00. 

Paid  for  same  in  cash. 
Purchased  from  Hub  and  Spoke,  for  cash,  carts  and  harness, 
$700.00.     Sent  them  check  for  same. 

Sold  Hutter  Bros.  1500  crates  earthenware  at  $2.75  per  crate. 

Chargetl  them  10  %  additional  for  packing. 
Purchased    of    the    Blank   Book    Co.,   stationery,    $1250.00. 

Mailed  check  for  same. 
Drew  check  for  petty  cash  purposes,  $250.00. 

—  Sold  2000  crates  finished  stock  to  Wallingford  &  Co.,  at  $  3.00 

per  crate.     Charged  them  $500.00  for  packing. 
Bought  1000  two-cent  postage  stamps,  paying  for  same  from 

petty  cash. 
Paid  insurance  premium  for  one  year  in  advance,  $250.00. 

—  Received  from  M.  S.  Pearce  his  30-day  note  in  payment  of  bill 

of  13th  instant. 


PRINCIPAL  PROBLEM   III 


221 


Mailed  check  to  Office  Furniture  Co.  in  payment  of  bill  of  3d 

instant. 
Sold  James  K.  Wallace  3500  crates  of  pottery  at  $2.00  per 
crate.     Charged  him  $750.00  for  packing. 
Jan.  25,  1914.  — Received  bill  from  Poster  &  Paiste  for  advertising.     (Contract 

for  advertising  which  runs  one  year  from  Jan.  1  ;  amount  of 
contract,  $3000.00.) 
Received  bill  from  Fixem  &  Son  for  repairs  to  machineiy, 
$100.00. 
Jan.  26,  1914.  —  Paid  cash  from  drawer  for  soap,  towels,  and  brushes  for  factoiy 

use,  $50.00. 
Green  withdrew  $300.00  for  personal  use. 
Ordered  300  tons  of  coal  at  $2.50  from  the  Bituminous  Coal  Co. 
Jan.  29,  1914.  —  Sold  to  The  World's  Department  Store  Co.,  750  crates  of  china- 
ware  at  $3.00  per  crate.     Packing  on  above,  $200.00. 
Purchased  from  L.  J.  Black,  10000  packing  crates  and  straw, 

$1000.00. 
Received   4   carloads  of  coal  ordered  on  the   25th;   weight, 
205  tons. 
Jan.  31,  1914.  —  Paid  wages  of  factory  hands,   $800.00;    engineers'   wages, 

$150.00;  office  salaries,  $220.00;  superintendents'  wages, 
$240.00;  teamsters'  and  stablemen's  wages,  $100.00. 

Total  and  post  all  books,  after  transferring  Petty  Cash  totals  to 
the  General  Cash  Book.  Take  Trial  Balance  of  the  General  Ledger, 
and  supplement  it  by  schedules  of  the  Customers'  and  Creditors' 
Ledgers,  to  prove  the  control  of  the  General  Ledger  Accounts 
"  Accounts  Receivable  "  and  "  Accounts  Payable  "  over  these  sub- 
sidiary Ledgers. 

Feb.    1,  1914.  —  Mailed  check  to  John  Doe  for  rent  of  February. 

Allowed  claim  of  Wallingford  &  Co.  of  $119.50  on  goods  sold 

to  them  on  the  22d  ultimo. 
Paid  Window  Cleaning  Co.  from  drawer  for  cleaning  factory 
windows,  $50.00. 
Feb.    3,  1914.  —  Received  last  two  cars  of  coal  ordered  on  the  26th  ult. ;  weight, 

91  tons. 
Bought  from  the  Ribbon  Typewriter  Co.,  one  typewriter  costing 

$100.00  net. 
Paid  bill  of  New  Tool  Co.,  dated  Jan.  3. 
Feb.    5,  1914. — Firm  contributed  gratis  10  crates  of  finished  stock,  to  aid  the 

Charity  Fair,  valued  at  $  100.00. 
Returned  100  tons  kaolin  purchased  from  A.  K.  Root  on  the 
15th  ult. 


222     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

Paid  firm's  note  of  Jan.  6,  due  to-day. 
Feb.    7,  1914.  —  Paid  freight  bill  for  January  by  check,  $22.50. 

Paid  from  drawer  for  pens,  pencils,  ink,  etc.,  $10.00. 

Discounted  M.  S.  Pearce's  note  at  Merchants'  National  Bank. 
Face  of  note,  $4125.00.     Proceeds,  $4092.69. 
Feb.    8,  1914.  —  Received  the  following  bills:    Fixem  &  Son,  for  Repairs  to 

Tools,  $75.00 ;  J.  H.  Jones,  for  Engine  Oil,  $35.00. 

Received  from  Hutter  Bros.,  their  note  at  15  days  for  $4000.00, 
to  apply  on  account. 

Paid  A.  K.  Root,  $10000.00,  on  account. 
Feb.  11,  1914.  —  Received  invoice  from  A.  Hammer  for  horseshoeing,  $65.00. 

Bought  of  Holt  &  Burns,  300  tons  kaolin,  for  $  3300.00.  Gave 
in  payment  note  for  $  1000.00 ;  sight  draft  on  J.  K.  Wallace, 
$2000.00 ;  balance  on  account. 

Bought  of  Broker  &  Co.,  500  shares  of  the  capital  stock  of  the 
San  Rosario  Rubber  Co.,  at  90  ($45000.00).  Commis- 
sion $62.50.  Charge  the  entire  amount  including  the  com- 
mission to  the  account  Investments. 
Feb.  12,  1914.  — Borrowed  of  the  National  Deposit  Bank,  $10000.00,  on  de- 
mand, at  5  %,  putting  up  as  collateral  400  shares  of  the 
stock  purchased. 

Borrowed  of  the  Farmers'  State  Bank  $  8000.00,  on  demand,  at 

5  %,  giving  as  security  100  shares  of  the  stock  purchased. 
Received  from  The  World's  Department  Store  Co.,  $3250.00, 

in  payment  of  invoice  of  the  17  th  ult. 
Feb.  14,  1914.  —  Discounted  Hutter  Bros.'  note  received  on  8th  inst.    Discount, 

$6.00. 
Received  from  J.  K.  Wallace,  $5000.00,  on  account. 
Discounted  firm's   30-day  note  at  Merchants'  National   Bank 

for  $20000.00.     Discount  rate  6%.     (Calculate  discount 

at  30  days.) 
Mailed   Broker  &  Co.  check  for  $45062.50  in  payment  of 

stock  purchased. 
Feb.  15,  1914.  —  Sold  M.  S.  Pearce  1500  crates  finished  goods  (earthenware), 

$  3750.00.     Packing,  $  375.00. 
Paid  factory  hands,  $1200.00;  engineers'  wages,  $150.00; 

drivers'  wages,  $100.00. 
Feb.  19,  1914.  — Paid  attomey-at-law,  $100.00,  for  services. 

Holt  &  Bums  have  drawn  on  firm  at  sight  in  favor  of  Jones 

6  Smith  for  balance  due  on  open  account,  $300.00.     Firm 
accepts  draft,  payable  at  bank. 

M.  S.  Pearce  returned  100  crates  of  goods  purchased  on  15th 
inst.     Credited  his  account  with  $250.00. 


PRINCIPAL  PROBLEM   III 


223 


Feb.  23,  1914. 


Feb.  25,  1914 
Feb.  28,  1914 


Pay  the  following  bills:  Poster  &  Paiste,  $3000.00;  Potter's 

Clay  Co.,  $5000.00. 
Feb.  21,  1914.  — Sold  J.  K.  Wallace  1000  crates  finished  goods  (chinaware)  at 

$2.00  per  crate.     Packing,  $250.00. 
Bought  of  the  New  Tool  Co.,  additional  tools,  $500.00. 
Hutter   Bros,    owe   the   firm   $537.50,   on    account.     L.    J. 

Black  assumes  this  debt  and  pays  $  137.50  in  cash.     Bal- 
ance charged  to  his  account. 
Discount  firm's  note  at  Merchants'  National  Bank  for  $  10000.00. 

Time  of  note,  10  days ;  discount  6  %. 
-Ordered  from  the  Bituminous  Coal  Co.,  400  tons  coal  at  $2.50. 
Hutter  Bros,  have  declared  an  assignment  for  the  benefit  of 

creditors.     As  indorser  on  theii*  note,  due  to-day,  firm  paid  it 

with  protest  fees,  $2.00. 
-Received  5  cars  of  coal  ordered  on  the  23d  inst. ;  weight,  240 

tons. 
-Paid  factory  hands,  $1200.00;    engineers'  wages,  $150.00; 

drivers  and  stablemen,  $  100.00 ;  superintendents'  wages, 

$240.00;  office  salaries,  $220.00. 
Received  the  last  three  cars  of  coal  ordered  on  the  23d  inst. ; 

weight,  150  tons.  • 
Received  from  the  assignee  of  Hutter  Bros.,  25  ^  on  the  dollar  in 

full  settlement  of  their  note  of  $  4000.00  and  protest  fees. 

Post  and  take  Trial  Balance  of  all  Ledgers.  Use  Petty  Cash 
Book  as  a  book  of  original  entry. 

Data  for  Closing  the  Books  of  Mudd,  Clay  &  Co.  — Prepare 
closing  entries  in  order  to  ascertain  net  gain  or  loss  of  the  business 
for  the  two  months,  taking  into  consideration  the  following  detailed 
data ;  and  using  Manufacturing,  Trading,  and  Profit  and  Loss  Ac- 
counts, placing  all  the  items  that  would  have  gone  into  Administra- 
tion Account  into  Profit  and  Loss  Account. 

(a)  Provide  depreciation  as  follows : 

1.  On  Machinery  at  the  rate  of  10  %  per  annum 

2.  On  Tools  at  the  rate  of  25  %  per  annum. 

3.  On  Horses  and  Carts  at  the  rate  of  15  %  per  annum. 

4.  On  Furniture  and  Fixtures  at  the  rate  of  35  %  per  annum. 
Provide  also  the  following  reserves  : 

5.  1  %  on  Accounts  Receivable  for  anticipated  discounts. 

6.  3  %  on  Accounts  Receivable  to  cover  anticipated  bad  debts. 
(6)   Charge  off  as  follows : 

1.    Charge  off  the  expired  portion  of  Advertising  Contract. 


il 


224     A  FIRST  YEAR  IN  BOOKKEEPING  AND  ACCOUNTING 

2.    Charge  off  the  expired  portion  of  Insurance  Premium, 
(c)    The  following  expenses  have  accrued  and  must  be  provided 
for: 

1.  Wages  1300.00. 

2.  Interest  on  Loans,  16  days  on  each  loan,  at  5  %. 
((?)  The  inventory  discloses  : 

Materials  and  Supplies  together  with  finished  stock  on  hand. 

1.  Kaolin 17200.00 

2.  Packing  Material 874.00 

3.  Coal  (162  tons  @  ^2.50) 405.00 

4.  Finished  Stock  (Earthenware) 8000.00 

(e)   Divide  the  stable  expense  together  with  the  depreciation  on 
horses  and  carts  equally  between  the  manufacturing  and 
trading  accounts,  as  the  use  of  the  teams  has  been  approxi- 
mately half  and  half  in  each  department. 
Apportion  the  rent  90^  to  factory  and  10%  to  office. 

(/)  Provide  interest  on  partners'  capital  at  the  rate  of  6%  per 
annum,  to  be  credited  to  them.  Charge  the  same  rates 
on  withdrawals. 

Submit  final  Balance  Sheet  in  approved  form. 


i 


INDEX 


Page 

Accounting 

Definition  of 1 

Accounts 

Accrual 14^2 

Allowance 85,  89 

Bad  Debts 141 

Bond 59 

Controlling 161 

Financial 

Personal 22 

Property 22 

Goods 37 

Loan 59 

Mortgage  Payable 59 

Nominal 22 

Notes  Receivable  Discounted    .  .    58 

Proprietorship 37 

Proprietor's  Capital 115 

Proprietor's  Personal 115 

Reserve 138 

Revenue  (see  Revenue  Accounts) 
Theory  of 37 

Account  Sales 

Definition  of 128 

Explanation  of 128 

Illustration  of 129 

Accruals 

Definition  of 142 

Recording  of 143 

Assets 

Definition  of 14 

Bad  Debts 141 

Balance  Sheet 

Definition  of 149 

Explanation  of 151 

Illustration  of 152 

Bank  Account 118 

Bill  Book 

Explanation  of 93 

Illustration  of 91,92 


Paok 


Bill  Book  (continued) 

Principle  of 90 

Value  of 94 

Bills  of  Lading 

Characteristics  of 104 

Conditions  to 107 

Definition  of 104 

Description  of HO 

Draft  attached  to HI 

Illustration  of 105,  106 

Negotiability  of 104 

Order HO 

Straight HO 

Vouchers  of Ill 

Bookkeeping 
Change   from   Single  to  Double 

Entry 41 

Definition  of 1 

Development  of 3 

Double  Entry     22 

Necessity  for 1 

Objects  of 1 

Single  Entry 5 

Capital  and  Revenue 158 

Cash 

Definition  of I^ 

Cash  Book 

Advantages  of 82 

Columnar 167,  168 

Explanation  of 79 

Illustration  of 80, 81 

Posting  of 82 

Principle  of 79 

Check  Book 122 

Illustration  of 120,121 

Reconcilement  of 123 

Checks 

Definition  of 118 

Indorsement  of 122,  123 

Closing  a  Set  of  Books 67, 146 


225 


226 


INDEX 


Pao« 


Columnar  Books 

Definition  of 134 

Explanation  of jgi 

Illustration  of 

Cash  Book 167,168 

Oeneral  Journal 174 

Petty  Cash  Book 171 

Purchase  Book 162,  163 

Sales  Book iqq 

Commission 

Definition  of jog 

Recording  of 13  j 

Consignments 

Definition  of 126 

Recording  of 134 

Coupon  Envelope 124 


Drafts  {continued) 

Sight 

Time 


Paob 

97 

97 


Debit  and  Credit 

Definition  of 3 

Rules  for,  in  Double  Entry ....     23 
Rules  for,  in  Single  Entry  ....       6 

Theory  of 37 

Deposit  Slips 119 

Depreciation 

Causes  of 135 

Definition  of 135 

Method  of  determining 137 

Recording  of 137 

Discount 

^ank 53 

Commercial 53 

Computation  of 5^ 

Definition  of 53 

Illustration  of 54 

Merchandise 53 

Trade '     53 

Double  Entry  Bookkeeping 
Change  from  Single  Entry  ....    41 

Definition  of 22 

Double-named  Paper 5(j 

Drafts 

Acceptance  of 99 

^^^} 97 

Definition  of 95 

Entries  for jqq 

Explanation  of 9(5 

Illustration  of    .  .    95,  97,  98,  99,  102 

Negotiability  of 99 

Parties  to 95 

Personal *  '    97 

Purposes  of ^ 


Financial  Accounts 

Definition  of ^  ^  ^  22 

Indorsements 

Blank ^g 

Explanation  of 49 

Special 49 

Interest 

Computation  of gg 

Definition  of 53 

Illustration  of 54 

Inventory 

Definition  of 14 

Recording  of oo 

Invoice  Book *  m 


Journal 

Columnar ^74 

Double  Entry 

Definition  of 22 

Explanation  of 26 

Illustration  of 25 

Posting  of 27 

Single  Entry 

Definition  of 5 

Explanation  of 7 

Illustration  of 7 

Posting  of 10 

Journalizing 

Definition  of 23 

Explanation  of 26 

Illustration  of    ....  «>r, 


zo 


Rules  for 23 

Single  Entry 7 


Ledger 

Creditors* jgj 

Customers' \^-^ 

Double  Entry 

Definition  of 23 

Explanation  of 29 

Illustration  of 27 

Single  Entry 

I  Definition  of 5 

j  Illustration  of 9 

Liabilities 
Definition  of ,  ,  .  .  .    14 


INDEX 


227 


\ 


Paok 
Merchandise 

Definition  of 14 

Negotiability 49 

Requirements  of 60 

Nominal  Accounts 

Definition  of 22 

Notes,  Promissory 15,  48 

Definition  of 48 

Illustration  of 48 

Maturity  of 50 

Negotiation  of 49 

Parties  to 48 

Payable 15,  48 

Purposes  of 50 

Receivable 15,  48 

Recording  of,  in  Bill  Book  ....    90 

Partnerships 

Articles  of 113 

Bookkeeping-for 115 

Definition  of 113 

Kinds  of 114 

Purposes  of 114 

Pass  Book 121 

Petty  Cash 170 

Imprest  System  of 172 

Original  Entry,  System  of  ...  .  172 

Voucher,  System  of 172 

Petty  Cash  Book 

Illustration  of 171 

Posting 10,  27,  82,  85,  88 

Present  Worth 15 

Profit  and  Loss 

In  Single  Entry 14 

Statement  in  Double  Entry    .  .  .  155 

Purchase  Book 

Advantages  of 89 

Columnar     162,  163 

Explanation  of 88 

Illustration  of 87 

Posting  of 88 

Principle  of 87 

Reserves 

Definition  of 138 

Recording  of 138 


Pagu 

Revenue  {see  Capital  and  Revenue) 

Revenue  Accounts 

Entries  for 179 

Explanation  of 176 

Illustration  of 177 

Rules  for  Debit  and  Credit 

In  Double  Entry 23 

In  Single  Entry 6 

Sales  Book 

Advantages  of 86 

Columnar     166 

Explanation  of 84 

Illustration  of 83 

Posting  of 85 

Principle  of 84 

Shipments 

Definition  of 126 

Memorandum  of 127 

Recording  of 130 

Single  Entry  Bookkeeping 

Advantages  of 17 

Change  to  Double  Entry 41 

Definition  of 5 

Disadvantages  of 17 

Present  Worth  in 15 

Profit  and  Loss  in 14 

Statements  in 16 

Statements 

Balance  Sheet 149 

Profit  and  Loss 155 

Single  Entry 16 

The  Six-Column 

Explanation  of 61 

Illustration  of 62 

Value  of 65 

Summary  Entry 165 

Trial  Balance 

Definition  of 35 

Illustration  of 34,  35 

Location  of  errors  in '36 

Preparation  of 35 

Reasons  for 34 

Value  of     36 


r 


e 


% 


^tp 


I? 


^ 


I!: 


»   , 


■j* 


Date  Due 

^rtF^ 

I 

"Js^H^H*^ 

-W 

'I     i-f-    >/ 

/A'jy^yu  /  tj" 

^|ll»ZSSl 

■ 

i  ^ 

0961   : 

93j 

r 

1 

« 

ID^vo 


Maofarland 


rn\G<=v 


A  first  y»ar  in  boojclkaoping  bh^ 


AK^H   Oyt^'h 


AUGiJ 


i'Jy:<4 


NEH 


COLUMBIA  UNIVERSITY  L  BRARIES 


0041419707 


»tfi«r«i«- 


Sffir 


■  M.I    t^i  I    »»<J 


f* 


END  OF 
TITLE 


